When Fidji Simo took the helm as CEO of Instacart in 2021, the grocery delivery platform was facing a significant challenge. Its pandemic-driven growth was fading, and the company’s board tasked Simo with finding new avenues for revenue generation.
Simo, a former executive at Meta with a background in advertising, leveraged her expertise to aggressively expand Instacart’s advertising business. This initiative, which began in 2019, allowed food brands to pay for enhanced visibility within the Instacart app. To address skepticism among brands about the effectiveness of these ads, Simo commissioned studies to demonstrate their efficacy.
In addition to bolstering the advertising arm, Simo devised a strategy to sell software tools and other products to grocery companies. The aim was to enhance the overall shopping experience for consumers. To build goodwill and strengthen relationships with grocery companies, Simo embarked on a tour, hosting executives at her home in Carmel, California.
Instacart’s transformation has been remarkable. In its recent offering prospectus, the company disclosed that its advertising and software divisions, once viewed skeptically, had turned a profit. This achievement is notable because most gig economy companies, which rely on contract workers for deliveries, have struggled to achieve profitability.
Approximately one-third of Instacart’s $2.5 billion in revenue in the previous year came from its highly profitable advertising and software division. During the first half of the current year, revenue from advertising and software, totaling $406 million, contributed significantly to Instacart’s $242 million in profit.
Instacart’s journey highlights a viable path for historically unprofitable gig economy businesses to enter the public markets: diversify into more lucrative areas and shift away from their gig-economy roots.
However, despite these impressive achievements, Instacart’s profits might not be sufficient to attract investors to its IPO. The company, once valued at $39 billion in the private markets, has repeatedly reduced its valuation, most recently to $10 billion. In its latest filing, it set a price range of $26 to $28 a share, valuing the company at $8.9 billion at the midpoint.
In a 2012 interview, Simo, now 37, described overseeing a “third act of the company.” This phase includes the introduction of software tools for retailers. Her goal is for Instacart to compete more effectively with e-commerce giants like Amazon and to assist traditional grocery stores in adapting to the digital era.
Instacart’s journey underscores the importance of adaptability and diversification in the gig economy. It also demonstrates the potential for companies to thrive by offering innovative solutions to both consumers and businesses.
While Instacart’s future as a publicly-traded company is uncertain, its evolution from a grocery delivery service to a profitable advertising and software platform serves as a compelling case study of resilience and innovation in the digital age.