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Illustration: Annelise Capossela/Axios

The race to scale isn't always won by the companies that dominate the largest markets.

Why it matters: DoorDash and Airbnb both filed to go public this week, ratifying the thesis that for real-world businesses, the road to multi-billion-dollar valuations does not need to go through major cities.

The big picture: Many new companies first concentrate on the biggest markets with the most demand. DoorDash and Airbnb, by contrast, became dominant in their sectors by focusing on places where there was little if any competition.

How it works: Truly innovative businesses create value by unlocking economic potential where it was previously entirely untapped. Suburban restaurants never used to deliver meals, while vacationers wanting to stay in such areas had almost no good choices at all.

Context: Platform businesses such as meal delivery tend towards local monopolies — local success breeds more success, as the platform become the place where all the local restaurants and the customers are. As a result, most cities are dominated by one of the big three companies — DoorDash, Uber Eats, and GrubHub (which owns Seamless).

  • DoorDash is the largest of the three, despite dominating no big U.S. city. That's by design.
  • "We started our business with a strategic focus on suburban markets and smaller metropolitan areas," says the company in its prospectus. Its first city was Palo Alto, population 65,000.

By the numbers: "Tier 1" cities — New York, Los Angeles, Chicago, Philadelphia, Washington D.C., San Francisco, and Boston — might make up 36% of the food delivery market, but they're also the slowest-growing segment.

  • "Tier 4" cities, by contrast — anywhere with a population greater than 100,000 that isn't in the top 100 cities by population — are growing almost twice as fast in terms of food delivery.
  • DoorDash dominates those suburban markets, where checks are family-sized and where parking and traffic are much less of a problem.

Airbnb has similarly dominated the suburbs, where there is much less competition from hotels and where demand for family-friendly accommodation is greater. It also has a dominant position in rural getaways, for much the same reasons.

Between the lines: Both companies have made acquisitions to get a foothold in big cities (HotelTonight for Airbnb, Caviar for DoorDash). But those purchases weren't necessary for either company's success.

The bottom line: Big cities by their nature are already full of choices and amenities. Smaller towns can present much greater opportunities.

Go deeper

Jan 27, 2021 - Axios Twin Cities

Scoop: Amazon Fresh eyes multiple Twin Cities locations

An Amazon Fresh store in California. Photo: Paul Bersebach/MediaNews Group/Orange County Register via Getty Images

Amazon is planning a big entry into the Twin Cities grocery market beyond just the Burnsville store we told you about on Tuesday.

What's happening: Amazon also wants to bring checkout-free Fresh stores to Eagan Town Centre and a former JCPenney store in Coon Rapids' Riverdale Village, Nick confirmed with his sources.

Jan 27, 2021 - Economy & Business

Telework's tax mess

Illustration: Annelise Capossela/Axios

As teleworkers flit from city to city, they're creating a huge tax mess.

Why it matters: Our tax laws aren't built for telecommuting, and this new way of working could have dire implications for city and state budgets.

1 hour ago - Health

Pfizer-BioNTech: Booster doses more effective at blocking Omicron

Prepared doses of the BioNtech-Pfizer Covid-19 coronavirus vaccine in Germany on Dec. 7. Photo: Thomas Kienzle/AFP via Getty Images

Pfizer and BioNTech said Wednesday that two doses of their COVID-19 vaccine were significantly less effective at neutralizing the Omicron variant in early lab tests, but a three-dose regimen was more effective.

Why it matters: Omicron, which has been labeled a variant of concern by the World Health Organization after being identified by scientists in South Africa last month, has forced vaccine makers to reassess the effectiveness of their vaccines against this specific new form of coronavirus.

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