Food Fight

Seamless, Fresh Out of Corporate Fetters, Buys MenuPages for $15 M. as GrubHub Comes Nipping

patsys sticker Seamless, Fresh Out of Corporate Fetters, Buys MenuPages for $15 M. as GrubHub Comes Nipping


New York City-based online food ordering service Seamless, born SeamlessWeb during the dotcom boom in 1999, has purchased Menupages from New York magazine publisher New York Media for $15 million and the right to sell advertising against MenuPages content for a year, Betabeat has learned.

New York Media Holdings CEO Anup Bagaria, who would not disclose the price but said it was “significantly more than we bought it for,” said the reason for selling MenuPages, which “has actually grown 100 percent since we’ve purchased it” in 2008, had to do with New York Media’s reluctance to invest in growing the business beyond advertising revenues.

Mr. Bagaria says New York Media started thinking about a sale at the end of the first quarter of 2011, when an undisclosed buyer approached with an offer for MenuPages. The unsolicited offer could have come from a long list of related companies, but Betabeat’s sources think was most likely either Zagat, which was exploring the possibility of adding menus to its reviews before it was acquired by Google; or the London-based Just-Eat, which raised $48 million to expand globally around the same time.

The offer inspired New York Media to find out who else might be interested. By the time the publisher was done, a source familiar with the situation says, it had spoken to a number of companies including Google, the publicly-traded reservation service OpenTable and Just-Eat.

For Seamless, the MenuPages acquisition is the latest in a string of aggressive moves spurred by fierce competition in an increasingly-heated market. Seamless has maintained a serviceable but increasingly stale product since it was bought by corporate caterer ARAMARK in 2006. But in June, Seamless spun out from under ARAMARK, raising $50 million in outside investment. Now, after years of complacence, Seamless is going after the consumer market with renewed vigor. Seamless’s fiercest competition comes from GrubHub, a seven-year-old Chicago upstart that completed a parallel purchase last week: the acquisition of Dotmenu, owner of online ordering site CampusFood and menu library AllMenus.

MenuPages actually approached GrubHub about an acquisition earlier this year, but “we couldn’t come to an agreement on price,” GrubHub CEO and co-founder Matt Maloney said. However, one source points to the timing of GrubHub’s Dotmenu acquisition, which was likely already in the works.

The rivalry between Seamless and GrubHub started long before the bidding war over MenuPages, however.

Seamless was founded in 1999 after New Yorker Jason Finger, a lawyer for all of six months, discovered the tyranny of reimbursement paperwork. Lawyers, investment bankers and other white collar workers spent hours of overtime for which they are given a food allowance–in many cases, employees front the money for their food and have to fill out oodles of paperwork to get reimbursed later, a annoyance for overworked employees and a headache for the accounting department. Mr. Finger and a few friends came up with the idea for SeamlessWeb, which made it easy for employees to order online. SeamlessWeb paid the restaurants and billed employers later for the tab.

SeamlessWeb signed up investment banks and law firms one by one, explaining how it would make their lives easier and their employees happier. The best part was that Seamless didn’t need city-wide coverage–it only needed a few dozen restaurants in the immediate vicinity of its corporate clients. The company grew slowly until it blanketed the city.

By 2004, Seamless was flying high. Inc. magazine named it the fourth-fastest growing company in the country, reporting its revenue as $29 million and its year-over-year growth as 2,608 percent. In 2006, Seamless sold to ARAMARK, a Philadelphia-based corporate catering provider for what was rumored to be a fabulous price, reportedly producing a thirty-fold return for Seamless’s investors. ARAMARK’s statement at the time–“the system streamlines billing and reimbursement processes, helps improve expense control, and reduces administrative overhead”–revealed its intentions to use Seamless to bolster services for its corporate clients.

Meanwhile, two entrepreneurs in Chicago were facing their own struggles with online food orders. GrubHub was conceived as a listings site where users could enter an address and find food delivery options around them–from there, online ordering was a natural extension. It was three years before GrubHub secured its first round of funding. But the company raised a total of $70 million this year and has been growing by leaps and bounds in part thanks to a technique that could be considered either resourceful or spammy. Unlike Seamless, GrubHub lists restaurants with which it has no prior relationship. The site shows the restaurant’s hours and menu, and offers a phone number for the restaurant. GrubHub later calls the non-participating restaurant, cites the number of referrals, and offers better placement in the listings, and a promise of two or three times the business, if the eatery sings up.

The gambit is reminiscent of how Airbnb seeded its listings by scraping Craigslist–and it works. As Seamless stagnated under ARAMARK, GrubHub was scooping up restaurants, customers and partnerships and creeping on Seamless’s territory, moving into the delivery grandaddy’s stronghold, Manhattan, in 2008, and the rest of the New York area in 2009. “GrubHub really came out of nowhere and really surprised everyone,” said one entrepreneur familiar with the space. “Seamless wasn’t worried about CampusFood”–another early online food ordering service, arguably Seamless’s biggest competitor–“they were worried about GrubHub. Dotmenu wasn’t worried about Seamless, but they were very worried about GrubHub. So it was funny because everyone in the industry wasn’t worried about everyone else, but they were all worried about GrubHub.”

Earlier this year, GrubHub started targeting corporate accounts via a loyalty program launched in partnership with the deal site

Meanwhile, executives at Seamless were starting to realize that while corporate business was steady and reliable, the general population was a much bigger prize. Seamless’s system worked just as well for individuals as it did for corporate account holders and the consumer market could scale much quicker. Unfortunately, what followed was the typical indigestion after a corporation eats a startup, and innovation at Seamless slowed to a crawl. Mr. Finger quit last year to “explore other challenges.” Wiley Cerilli, who had run sales at Seamless since its inception, quit around the same time.

But then in June of this year, Seamless broke free under the leadership of Jonathan Zabusky, who replaced Mr. Finger as CEO, and raised $50 million from private equity firm Spectrum Equity Investors, which now holds a minority stake in Seamless. Now that it has its own board of directors and fresh capital to spend, Seamless is moving at rocket speed. The company changed its name, redesigned its website, ramped up advertising and threw huge resources behind its mobile effort, an area of explosive growth. Seamless is hiring “for everything,” Mr. Zabusky said. The company is moving into a new office in the fall, somewhere on Madison Avenue in the 30s, that will be “conducive to brand we’re building,” he said. “We’re going to have food permeating through our environment.”

The food fight seems to be coming to a head with GrubHub’s recently-announced $50 million raise and its acquisition of Dotmenu/Allmenus. One source familiar with the space alleges that Allmenus database is built around a collection gathered primarily three to four years ago. GrubHub CEO Mr. Maloney says differently. “The Dotmenu acquisition that we did just supercedes the Menupages business so strongly in terms of menus, in terms of traffic,” he said. “Allmenus is just a stronger website than MenuPages in all facets, if you look at traffic, if you look at menus, if you look at markets. So I’m actually glad that when we were talking to Menupages we decided not to, because that actually freed up our attention for the bigger prize that came down the road a little later.”

MenuPages’s history is strikingly similar to that of Seamless. Menupages, founded in 2002, engineered a highly-efficient menu transcription process and was bought in 2008 by New York Media. The publisher saw its new asset as a way to beef up its restaurant listings–and as a source for content against which to run ads. While MenuPages was profitable, its new owner lacked the appetite for risk it would take to develop a product that was outside its core editorial business. Although MenuPages launched a mobile app, refreshed the site’s look and maintains an excellent reputation among consumers and restaurants in New York, it is only available in eight cities in the U.S. and has largely stuck to its core features. “There was a point where MenuPages was the most prominent restaurant site on the internet,” said one person familiar with the company. “Then Yelp came along and Yelp became prominent. Now there’s a plethora of them. Yelp, Foodspotting–MenuPages could have been all of these things.”

In addition to growing 100 percent over the past three years, Mr. Bagaria, New York Media’s CEO, said MenuPages “has been a very profitable transaction for us.” Indeed, it’ll be “business as usual” for the next year, he said, as New York Media will continue selling ads for MenuPages. But New York Media could see the next logical step for MenuPages would be online ordering or reservations, and it wasn’t eager to jump into that fray. MenuPages would have needed “more than advertising revenues to get to the next stage,” Mr. Bagaria said. “It was really, do we spend the investment dollars to do that or do we sell?” A source familiar with the situation points to New York Media’s recent expenditure to develop in its entertainment blog Vulture and its fashion blog, The Cut, which released an iPad app in January. There was some internal frustration within MenuPages about New York Media’s unwillingness to invest, the source said.

MenuPages ended up going with Seamless–not surprising given Seamless was already powering MenuPages’s online orders. With the MenuPages acquisition, Seamless says it will cover more than 50 cities in the U.S. as well as London, with 40,000 restaurant menus and more than a 1.5 million unique visitors a month. “Combined, we’re more than 50 percent ahead of the closest competitor doing both of these things,” Mr. Zabusky said. All of MenuPages employees will be asked to join Seamless, he said.

GrubHub says it’s in more than 50 markets, with more than 14,000 restaurants, more than 250,000 menus, and more than three million unique visitors a month–more than twice the traffic and more than seven times the menus of Seamless, Mr. Maloney said. “I typically don’t talk this much about Seamless because we don’t view them as incredibly strong competition for what we’re doing,” he told Betabeat. “Seamless fundamentally is a corporate catering business. They were founded years and years and years ago to do just that. And they’re still best in the business for corporate. They recently got into the consumer and residential pick-up and delivery. And they do it well in New York, but they really have zero business anywhere else. We dont even consider them competition anywhere other than Manhattan specifically.”

Now, Seamless is pushing its mobile effort forward at full speed–in two separate interviews with CEO Mr. Zabusky, the CEO mentioned the word “mobile”  The company already has had more than 800,000 downloads of its iPhone, Android and BlackBerry apps, and has an iPad app in development.

Disclosure: Nitasha Tiku has previously worked for New York Media’s online property as a blogger for Daily Intel.