A few years ago, on a business trip in Los Angeles, I called an Uber for a rush hour ride. I knew it was going to be a long ride, and I trained myself to pass $60 or $70.
Instead, the app offered a jaw-dropping price tag: $16.
Experiences like this were common during the golden age of the Millennium Lifestyle Benefit, which I like to call the period from about 2012 to early 2020, when many of the daily activities of members of the public. The 20- and 30-year-old mega-city is happening quietly underwritten by Silicon Valley venture capitalists.
For years, these grants allowed us to live the Balenciaga style on the Banana Republic budget. Collectively, we took millions of cheap Uber and Lyft rides, circling ourselves like bourgeois royalty while splitting the bill with those companies’ investors. We brought MoviePass to bankruptcy by taking advantage of the $9.95 a month movie ticket offer, all you can watch and take in so many subsidized filming classes that ClassPass was forced to cancel the package unlimited $99 a month. We fill graveyards with the remains of food delivery startups – Maple, Sprig, SpoonRocket, Munchery – simply by accepting their offers of undervalued gourmet meals than.
The investors of these companies did not set out to control our decadence. They are just trying to create traction for their startups, all of which need to attract customers quickly to establish a dominant market position, eliminate competitors, and justify the norm. their exorbitant prices. So they flood these companies’ cash, which is often passed on to users in the form of artificially low prices and generous offers.
Now, users are seeing for the first time that – whether due to subsidies disappearing or simply due to heightened demand at the end of the pandemic – their luxury habits actually carry the luxury price tag.
“Today my Uber ride from Midtown to JFK cost me as much as my flight from JFK to SFO,” said Sunny Madra, vice president at Ford’s venture incubator, recently. tweeted, along with a screenshot of the receipt showing he spent almost $250 on a trip to the airport.
“Airbnb got their hands on their chips too much,” another Twitter user complain. “No one will continue to pay $500 to stay in an apartment for two days when they can pay $300 for a hotel stay with a pool, room service, free breakfast, and daily cleaning. day. Like getting really lol. “
Some of these companies have been tightening their belts for years. But the pandemic seems to have stripped away what was left of the bargain bin. Uber and Lyft rides cost an average of 40% more than they did a year ago, and food delivery apps like DoorDash and Grubhub have steadily increased their fees over the past year, according to Rakuten Intelligence. Airbnb’s average daily rent rose 35% in the first quarter of 2021, year-over-year, according to the company’s financial filings.
Part of what is happening is that as demand for these services soars, companies that used to compete for customers are now dealing with an overabundance of them. Uber and Lyft are grappling with driver shortages, and Airbnb rates reflect soaring demand for vacations and a shortage of available listings.
In the past, companies may have offered promotions or incentives to keep customers from getting shocked and take their business elsewhere. But now they’re either shifting subsidies to the supplier side — Uber, for example, recently set up a $250 million “driver stimulus” fund — or phasing them out altogether.
To be honest, I have been happily participating in this subsidized economy for many years. (Memorable my colleague Kara Swisher called it “Supporting Millennials.”) I get my laundry delivered by Washio, my house gets cleaned by Homejoy, and Luxe takes care of my car – all startups that promise price-on-demand service. Cheap, revolutionary but closed after profit failure. I even bought a used car through a venture capital startup called Beepi, which offers a mysteriously low price and white glove service, and delivered the car. me wrapped in a giant bow, like you see in TV commercials. (No wonder Beepi closed in 2017, after burning through $150 million in venture capital.)
These subsidies don’t always end well for investors. Some venture-backed companies, like Uber and DoorDash, were able to make it through their IPO, making good on their promise that investors would eventually see a return on their money. surname. Other companies were acquired or were able to successfully raise prices without scaring off customers.
Uber, which raised nearly $20 billion in venture capital before going public, may be the best-known example of an investor-subsidized service. Throughout 2015, the company burned $1 million đốt week according to a BuzzFeed News report on offers for riders and riders in San Francisco alone.
However, the most obvious example of a difficult turn to profitability might be the electric vehicle business.
Remember scooters? Before the pandemic, you couldn’t walk down the sidewalk of a major American city without seeing it. Part of the reason they succeeded so quickly is because they’re ridiculously cheap. Bird, the largest scooter startup, charges $1 to start a ride, and then 15 cents a minute. For short trips, renting a scooter is usually cheaper than taking a bus.
But those fees don’t represent anything close to the true cost of a Bird ride. The scooters regularly broke down and needed constant replacement, and the company poured money out just to keep it afloat. As of 2019, Bird has lost $9.66 for every $10 it earns on rides, according to a recent investor presentation. That’s a shocking number and the kind of protracted loss that is only possible for a Silicon Valley startup with extremely patient investors. (Imagine a deli that charges $10 for an ingredient sandwich that costs $19.66, and then imagine how long the deli will be in business.) .)
Pandemic-related losses, coupled with pressure to profit, have forced Bird to trim its sails. It’s upped the price – a Bird now costs as much as $1 plus 42 cents a minute in some cities – has built more durable scooters and improved its fleet management system. In the second half of 2020, the company made $1.43 in profit for every $10 ride.
As an urban youth interested in a bargain, I can – and often do – lament the disappearance of these subsidies. And I love hearing about people who have discovered even better deals than me. (Ranjan Roy’s essay “DoorDash and Pizza Arbitrage,” about the moment he realized that DoorDash was selling pizza from his friend’s restaurant for $16 while paying the restaurant $24 per pizza. and going on to order dozens of pizzas from the restaurant while pocketing the $8 difference, is a classic of the genre.)
But it’s hard to blame these investors for wanting their companies to turn a profit. And, on a broader scale, perhaps it would be good to find a more efficient use of capital than to discount the rich metropolises.
Way back in 2018, I wrote that the whole economy was starting to resemble MoviePass, a subscription service with the irresistible, incredibly profitable offer of daily movie tickets for a flat subscription fee. $9.95 has paved the way for its decline. I think companies like MoviePass are trying to defy the laws of gravity with business models that assume that if they get to massive scale, they’ll be able to flip the switch and start making money at a certain point. some time. (This philosophy, more or less invented by Amazon, is now called “blitzscaling” in the tech world.)
There is still a lot of irrationality in the market and some startups are still burning huge sums of money in search of growth. But as these companies mature, they seem to be discovering the benefits of financial discipline. Uber lost just $108 million in the first quarter of 2021 — a significant improvement, believe it or not, compared with the same period last year, when it lost $3 billion, and both it and Lyft have pledged to be profitable. on an adjusted basis this year . Lime, Bird’s main electric vehicle competitor, posted a first-quarter profit last year, and Bird – which recently filed to go public through SPAC at a $2.3 billion valuation – have better economic forecasts in the coming years.
Of course, returns are good for investors. And while it hurts to pay the unsubsidized price of our luxuries, there’s a certain fairness to that, too. Hire a private driver to take you around Los Angeles during rush hour Candlestick costs more than $16, if everyone in that transaction is being fairly compensated. Ask someone to clean the house, do the laundry, or deliver your dinner Candlestick is a luxury, if no exploitation is involved. The fact that some premium services are no longer easily affordable for the merely well-to-do may seem like a worrying development, but maybe it’s a sign of progress.