Instacart plans a strategy shift to sell software to grocers and more ads in its app, trying to avoid becoming another pandemic boom company that has fizzled
Context & Ripple Effects
Instacart has been telegraphing this move for months: CEO Fidji Simo first laid out plans to expand the online ad platform back when the delivery business was already slowing (ad platform expansion), then postponed its IPO past Q4 explicitly to build out services for retailers beyond delivery (IPO postponement). The March 2022 valuation cut to $24B after hiring over 1,500 staff in 2021 raised the stakes for showing investors a growth story that survives the pandemic pullback.
The shift also rhymes with company history — Instacart quietly moved its primary revenue model once before, from delivery fees and markups to grocer fees (the 2015 revenue model change) — so selling software and ads is a third re-architecture of how it makes money. The later results validate the bet: ads and software generated $406M in H1 2023 revenue (Simo's new revenue streams).
First-order effects
- Grocers gain a new commercial relationship with Instacart beyond per-order fees — buying its software — while consumer-product brands get more ad inventory inside the app.
Second-order effects
- Ad and software revenue reduces Instacart's dependence on delivery volume, changing what it must show IPO investors after the hiring slowdown and valuation reset (hiring slowdown ahead of IPO).
Third-order effects
- If the pattern holds, grocery e-commerce intermediaries compete less on delivery logistics and more on who owns the retailer's digital storefront — advertising and software becoming the margin engine that subsidizes fulfillment.
The trend: Pandemic-era delivery platforms are converting order volume into higher-margin advertising and SaaS revenue before facing public-market scrutiny.