Don’t Be Like McDonald’s: How Incumbent Enterprises Can Own the Future of Platform Innovation

When it comes to delivery, McDonald’s is not loving it. Today, its businesses are beholden to large delivery platforms that exact a significant take rate from all of their restaurant partners. The platforms have market power, and the restaurants have little choice but to play by the platforms’ rules. But for McDonald’s, things didn’t have to be this way.

The US food delivery market, projected to reach $24 billion in restaurant-to-consumer and platform-to-consumer revenues in 2020, is led by a few big platform players such as Grubhub, Doordash, and Postmates. But a standout in the volatile and quickly-consolidating space is UberEats, the delivery platform subsidiary of Uber.

McDonald’s rolled out an exclusive partnership in 2017 with UberEats to compete with other big chains that already had delivery services. But with UberEats roughly keeping a 15-30% take rate from restaurant partners — lowered preferentially for McDonald’s, given its size and importance as a client —  the platform immediately started to benefit big time from the alliance, while the fast food behemoth got only short-term benefits from the deal.

In a world ruled by platforms, large incumbent businesses should be thinking about how to leverage their intrinsic assets – what we call enterprise “dry powder” – to position themselves for the inevitable platform future that’s coming in their industry. Ideally, as an incumbent you should be looking at how to position yourself to have some ownership stake in this platform future. Understanding how to leverage your dry powder in the context of a new platform business is the key.

How UberEats Built an Empire on the Back of McDonald’s

It was a partnership that resulted in $3 billion in delivery business for McDonald’s. But as it turns out, that number was little more than a vanity metric.

Franchisees saw the problem with the model and spoke up. The National Owners Association (NOA), an independently-formed advocacy group, noted that a vast majority of the 800 McDonald’s owners surveyed were “not satisfied with the economics” of outsourcing delivery to UberEats. The take rate was too high, and the exclusivity of the delivery partnership meant no flexibility to work with other, similar services.

While McDonald’s did eventually respond to these complaints by lowering transaction fees and disbanding from the exclusive partnership, franchise owners were dealing every day with a problem that the leadership was blind to, or at least failed to take seriously.

Meanwhile, UberEats expanded to more than 100 cities outside of the US in 2018, and McDonald’s accounted for about 10% of restaurants listed on UberEats worldwide – just as Uber was about was about to go public and needed to prove its delivery business was a winner. UberEats effectively used McDonald’s to solve for supply on an international scale. UberEats became a dominant player in the US and abroad, and McDonald’s got little-to-no long term benefit.

McDonald’s lost the chance to exact a much better deal from Uber when it had the leverage to do so. Recent moves to diversify partnerships through deals, like with Doordash and with Just Eat in the UK, won’t make up for the missed opportunity. McDonald’s had the ability to give a big advantage to whichever platform it partnered with – and it should have gotten much more long-term value for that. 

To be fair, McDonald’s did get one thing right: it was too late to build a delivery platform from scratch. McDonald’s then-CEO Greg Easterbrook mandated in mid-2016 that the company get delivery up and running, at scale, within 6 months. McDonald’s was behind its competitors in delivery and needed to catch up, fast. In that sense, the UberEats partnership was a short-term win for the company.

This reality is one faced by many large incumbents. Building a platform business entirely from scratch can take five to seven years to reach scale. For most incumbents this timeline is simply too long. But via the right partnerships, as well as investments and acquisitions, incumbents have the ability to accelerate their platform innovation journey and achieve an ownership stake in a platform that can hit significant scale within a few years – just as UberEats did on McDonald’s back.

The Routes McDonald’s Could Have Taken In Delivery

A large incumbent often has significant assets and untapped advantages that in can bring to a platform business that will accelerate the platform’s ability to scale. This was true with McDonald’s in delivery, and it is true for large incumbents in many other industries as well.

The key is:

  1. To have the foresight to get ahead of that platform disruption
  2. To leverage those assets as a backer or strategic partner of a new platform to help it reach winner-take-all status

There are a number of approaches you can take to capturing an ownership stake in this platform future, and they’re not each mutually exclusive, as you’ll see below. But given the expectations large (and especially public) enterprises face from their board and investors, building entirely from scratch is often not a viable option.

Accelerating this journey with a “build and buy” approach is the more realistic path. Below are some examples of large companies that have successfully captured platform innovation with this accelerated timeline in mind.


Investing is probably the least predictable and replicable growth strategy, as far as raising capital for platform innovation efforts is concerned. But this approach can limit downside risk early on and give the traditional enterprise the opportunity to learn before making a bigger commitment. That said, a well-executed investment approach can also pay off handsomely in its own right.

Take SoftBank and Naspers, for example. SoftBank was able to turn its $20 million investment in the once-fledgling Chinese marketplace Alibaba into $60 billion just a few years later. Today of course, SoftBank is fueling some of the largest tech companies in the world through the SoftBank Group and the $100 billion Vision Fund.

The South African media giant Naspers similarly turned a $32 million investment in Tencent into what amounted to a $175 billion stake in 2018. The company also owns OLX Group, a classifieds-style global powerhouse of a marketplace, as well as the leading fintech firm PayU and the American used goods marketplace LetGo.

Partnerships and Joint Ventures

Partnerships can also help incumbents get an ownership stake in their industry’s platform future. This approach typically entails joining up with established tech startups or even traditional competitors. The companies can collectively pool their assets to launch a new platform while solving for supply, demand, and scale.

This is how industry incumbents created Zelle, the payments platform that outpaces PayPal’s Venmo by two-to-one — that is, $122 billion in payments processed to Venmo’s $62 billion, as of 2018.

In retail, Footlocker partnered with GOAT, the sneaker marketplace, through a $100 million strategic investment.  This partnership enables Footlocker to tap into a new source of demand – online customers on the hunt for collectible footwear – while giving it a strong moat against dominant marketplaces like Amazon. And GOAT gets access to Footlocker’s supply chain and logistics footprint as well as its strong linear supply and brand recognition.

Acquisitions and Roll Ups

Making acquisitions to buy the necessary demand, supply and/or tech is another proven method for expediting the path of platform innovation.

Walmart has executed this strategy very successfully in retail. After spending years trying to create a curated eCommerce experience that ultimately failed, Walmart bought the marketplace. Jet’s ability to help Walmart open up to third-party sellers and seed the supply side network effects would be the foundation for Walmart’s quick turnaround in its decades long fight with Amazon.

Walmart’s Marketplace went from about 10 million SKUs to more than 60 million SKUs within 12 months after the Jet acquisition. Walmart doubled down by buying up eCommerce brands like Bonobos and ModCloth. While these acquisitions as standalone businesses haven’t produced hoped-for profits, they have helped scale the Walmart Marketplace by providing it with unique products.  Not all users are created equal, and unique supply can be a key factor in attracting customer demand for any platform business.

Lastly, Walmart went all-in on marketplaces by acquiring a 77% ownership stake in Flipkart for $16 billion, instantly giving the mega-retailer a commanding position in India’s online shopping scene. Amazon, of course, is also a dominant player in the Indian eCommerce market.

Walmart knew that marketplaces were the future, and it methodically rolled up the right combination of demand, supply and technology to put it in the position to truly compete with Amazon’s marketplace for the first time – both in the US and in key growth markets internationally.

Another financial industry example combined both the partner and the buy approach. The financial messaging platform Symphony was the result of an effort by a group banks led by Goldman Sachs to create a competitor to Bloomberg’s terminal business after Bloomberg reporters’ were caught spying on banks’ financial transactions. To jumpstart the platform, the group of banks bought the instant messaging app Perzo, rebranded it. Goldman also contributed its in-house messaging technology to the new company and turned the platform into a one-stop-shop for traders looking to chat and exchange market info.

Lastly, McDonald’s missed out on once again on a massive opportunity to do something similar in China. It divested 80% of its business in the country in 2017 for slightly over $2 billion, where it could have instead looked at a takeover of or partnership with Meituan-Dianping, a major Chinese group buying outlet with a thriving food delivery marketplace. McDonald’s had the scale and the ability to accelerate Meituan’s growth with its brand and customer demand, but it instead chose to exit the market. With Meituan-Dianping growing to achieve a $55 billion valuation at its IPO, McDonald’s missed another big chance to capture the platform opportunity in delivery.

McDonald’s is a Cautionary Tale for Incumbents

As a traditional incumbent business, you don’t want to step into an inevitable platform future without understanding the economics that will be driving it.

If you neglect to innovate around the platform model using everything that works in your enterprise’s favor — the “dry powder” that’s taken years for your business to accumulate, which gives you a formidable edge over startups — you seriously risk being left behind.

Successful platform businesses, particularly platform conglomerates like Uber, will jump on opportunities to capture supply or demand from any incumbent business willing to give it up on favorable terms. McDonald’s delivery troubles are a prime example of what happens when incumbent enterprises don’t get ahead of the inevitable platform future in their industry. However, there are also some very successful examples of incumbents finding the right approach to capture an ownership stake in that platform future.

That ownership stake provides them not just with tremendous equity value but also with a strong moat against disruption, as well as potentially substantial revenue lift for the core business.

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