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On-Demand Companies Consider Outsourcing Delivery With Uber

Others decided against it, worrying that Uber would betray them "Game of Thrones"-style.

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Uber has discussed offering delivery services to on-demand companies that bring food, packages, clothing and other things to people, according to sources familiar with talks.

The ride-hailing service has a huge fleet of drivers at the ready in over 180 cities across the United States, and it is no secret that it has explored the local delivery game with bigger retailers such as Gilt Groupe and high-end jeweler Alexis Bittar.

Uber is also considering deals with smaller companies, Re/code has learned, speaking with at least four on-demand startups and likely more about doing their deliveries. Several founders and investors of these companies told Re/code it is safe to assume Uber has talked to “almost all of the on-demand services” — except for the weed and alcohol companies, which require special driver vetting.

The talks haven’t progressed beyond early stages and may not indicate that a deal is in the works. Uber, for its part, said it’s focused on other priorities. A spokesperson told Re/code, “Many on-demand startups have reached out to us with interest in harnessing our expansive and reliable network, but right now we are focused on our own products and services, like UberPool and UberEats.”

Uber’s discussions come at an interesting time for the fledgling on-demand industry. Delivery costs are quickly becoming a vulnerability for the sector — startups are struggling with the challenges of building out their own reliable delivery workforce. Moreover, the China-led market meltdown has prompted investors to urge companies to speed up profitability timelines and look for cost cuts.

What has not helped is the bidding war for drivers among the glut of on-demand startups that has driven up the cost of delivery — there’s Postmates, SpoonRocket, Washio, Uber, Lyft, Sidecar, Sprig, Doughbies, BloomThat, Shyp, DoorDash, Munchery and Instacart, among others. Some companies are offering driver bonuses and higher paychecks to lock up the market for drivers.

Almost all of them have used venture money to lower the cost of delivery and charge consumers less. But with the funding threatening to dry up, companies are scrambling to find lower-cost delivery services.

The on-demand founders I spoke with fell into two camps: Those who, despite the challenges, have doubled down on running their own delivery workforce because they don’t want to let go of such a big part of their service and those who have already started relying on third-party delivery providers to drop off their products.

Some of the companies that talked with Uber were apprehensive about turning over a vital part of the business and the consumer data to a company with a history of aggressive business tactics.

“In business, I don’t ever want to play ‘Game of Thrones,'” said one such founder. “I work only with the companies I have deep trust for.”

But several founders said they already rely on a patchwork of delivery people, contracting local courier services for some neighborhoods, FedEx for others, Sidecar for chunks and some of their own team members. Adding Uber as part of this network and restricting Uber’s involvement would limit their exposure.

“If the shit hits the fan and burning money on growth is not accepted by investors, you need to save anywhere you can,” said one founder. “You’d want to contract with someone that has the economies of scale. Companies like FedEx can buy gas for their planes and get discounts on everything else involved in the process.”

A third founder agreed. “The more liquidity you have and the more drivers you have, the lower the cost,” he said. “You better believe Uber will be a force to be reckoned with in last-mile delivery.”

None of the founders I spoke with had started official trials with Uber yet, although one had done a small one-off test.

But in the next phase of this sector, prepare to see some of the on-demand companies outsource the “on-demand” part of the business.

This article originally appeared on Recode.net.

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