When Fidji Simo became CEO of Instacart in 2021, the company was facing a decline in growth after the peak of its pandemic success. In response, Simo focused on expanding Instacart’s advertising business, which had been established in 2019. This involved allowing food brands to pay for better placement in the app and commissioning studies to demonstrate the effectiveness of these ads. Simo also developed plans to sell software tools and products to grocery companies in order to enhance the shopping experience.
As Instacart prepares to go public, its transformation into a different company is evident. Initially envisioned as a platform connecting people with shopping and delivery services, Instacart has shifted its focus towards advertising and software products. The success of these ventures was highlighted in its offering prospectus, which revealed that ads and software sales helped the company turn a profit. This achievement is noteworthy considering the challenges faced by other gig economy companies that rely on contract workers for delivery services.
According to Instacart’s prospectus, around one-third of its $2.5 billion in revenue last year came from its highly profitable ads and software division. In the first half of this year, revenue from ads and software reached $406 million, contributing to a profit of $242 million. This diversification into more lucrative areas and the move away from its gig economy roots has allowed Instacart to reach the public stock market.
Despite its profitability, Instacart’s recent valuation has been significantly reduced from its previous worth of $39 billion to the current range of $8.9 to $10 billion. The company’s ability to attract investors to its IPO remains uncertain. In an interview, Simo highlighted her plans for Instacart to compete with Amazon’s grocery delivery services and help traditional grocery stores adapt to the digital world.
Instacart’s journey from a cash-burning startup to a more profitable company has been marked by its shift towards advertising and software products. The company’s executives initially debated the impact of ads on customers but eventually expanded the scope and frequency of ads due to positive internal tests. Simo’s appointment as CEO came during a challenging period when the company’s growth had slowed down. However, her strategic decisions, including the acquisition of start-ups like Caper, have strengthened Instacart’s advertising and software offerings.
Although Instacart still faces challenges, such as heavy reliance on a few major grocery retailers and stagnation in its delivery business, its profitability in the ads division remains closely tied to its core delivery operations. Overall, the company’s transformation and diversification have positioned it for future growth and competition in the digital grocery marketplace.
