As online delivery site GrubHub/Seamless prepares for a $100 million IPO, the eagle-eyed folks over at Quartz read through the company's prospectus and made a few interesting discoveries. First, they crunched some numbers and can confirm that the website's average commission is 13.5% per order; previous rumors have held the number to be on a scale between 5% and 15%.
Second, they discovered that the company lets restaurants pick the amount of commission they want to pay. The higher the rate of commission, the higher the restaurant appears in GrubHub's search results. As Quartz notes, though, this information "isn't clear to GrubHub and Seamless users."
The US Federal Trade Commission has some thoughts on paid search results, which is that they should be "conspicuously" disclosed to consumers. However, this commission information does not appear on their Legal/Privacy page or their Sales page. It's right there in the prospectus, though:
The Company generates revenues primarily when diners place an order on the GrubHub platform. Restaurants pay a commission, typically a percentage of the transaction, for orders that are processed through the GrubHub platform. Restaurants can choose their level of commission rate, at or above the Company's base rates, to affect their relative priority in its sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates. Commissions are generally based on a fixed percentage of the value of the order.
Could this be why fake restaurants have started popping up on Seamless in New York City? Just last week, it was discovered that some restaurants have joined the website under a fake second (or third, or fourth) name, but when investigated the Seamless accounts all direct orders to the same restaurant. If a restaurant pays on the low-end of the commission scale but enters their menu as a fake restaurant several times, they could potentially increase the amount of times they appear in Seamless's search results without paying the higher commission fee.
Seamless denied previous knowledge of the fake restaurants and has vowed to "[take] steps to correct the situation." However, as new batches of fake restaurants keep popping up, it seems this method of scamming their search results is widespread. What a mess; hopefully, it's one they can clear up before the IPO.