A few years ago, on a work trip to Los Angeles, I flagged down an Uber for a rush-hour ride through town. I knew it would be a long trip and hardened myself to shell out over $ 60 or $ 70.
Instead, the app spat out a price that knocked my jaw off: $ 16.
Experiences like these were common during the heyday of the Millennium Lifestyle Grant, which is what I like to call the period from around 2012 to early 2020, when a lot of activity was going on. daily life of the 20 and 30 years of the big cities was done quietly. underwritten by Silicon Valley venture capitalists.
For years, these grants have allowed us to live the Balenciaga lifestyle with the budgets of Banana Republic. Collectively, we’ve taken millions of cheap Uber and Lyft rides, commuting like bourgeois kings while sharing the bill with investors in those companies. we dived MoviePass bankrupt taking advantage of his offer of unlimited movie tickets at $ 9.95 per month, and took so many subsidized spin classes that ClassPass was forced to cancel its unlimited plan at $ 99 per month. We’ve filled graveyards with the carcasses of food delivery start-ups – Maple, Sprig, SpoonRocket, Munchery – just by accepting their cheap gourmet meal deals.
The investors in these companies did not aim to finance our decline. They were just trying to attract their start-ups, which all needed to quickly attract customers to establish market dominance, oust competitors, and justify their skyrocketing valuations. So they flooded these businesses with cash, which was often passed on to users in the form of artificially low prices and generous incentives.
Now, users are noticing that for the first time – whether it’s because of the disappearance of subsidies or simply an increase in end-of-pandemic demand – their luxury habits are in fact carrying luxury price tags.
“Today my Uber ride from Midtown to JFK cost me as much as my flight from JFK to SFO,” said Sunny Madra, vice president of the Ford Incubator recently. tweeted, as well as a screenshot of a receipt showing he spent almost $ 250 for a ride to the airport.
“Airbnb has had too many holes on its chip,” another Twitter user complained. “No one is going to keep paying $ 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 housekeeping. Like getting real lol.
Some of these companies have been tightening their belts for years. But the pandemic appears to have emptied what was left of the bargain bin. The average Uber and Lyft ride costs 40 percent more than a year ago, according to Rakuten Intelligence, and food delivery apps like DoorDash and Grubhub were regularly increasing their fees over the past year. The average daily rate for an Airbnb rental increased 35% in the first quarter of 2021, compared to the same quarter a year earlier, according to the company’s financial documents.
Part of what is happening is that as the demand for these services skyrockets, businesses that once had to compete for customers are now faced with a glut of them. Uber and Lyft are grappling with a shortage of drivers, and Airbnb rates reflect growing demand for summer getaways and a dearth of available listings.
In the past, companies could offer promotions or incentives to prevent customers from being shocked by stickers and taking their business elsewhere. But now they are shifting the subsidies to the supplier side – Uber, for example, recently installation a $ 250 million “driver stimulation” fund – or cut them altogether.
I admit that I have happily participated in this subsidized economy for years. (My colleague Kara Swisher is memorable called him “Assisted living for millennials. I had my laundry delivered by Washio, my house cleaned by Homejoy and my car parked by Luxe – all start-ups that promised cheap and revolutionary on-demand services, but then closed their doors afterwards. not to make a profit. I even bought a used car through a start-up funded by a company called Beepi, which offered white glove service and mysteriously low prices, and delivered the car to me wrapped in a giant bow, as you see in TV commercials. (Unsurprisingly, Beepi closed in 2017, after spending $ 150 million on venture capital.)
These grants don’t always end badly for investors. Some venture-backed companies, like Uber and DoorDash, were able to do this until their IPOs, keeping their promise that investors would eventually see a return on their money. Other companies have been acquired or have managed to increase their prices without scaring customers.
Perhaps the best-known example of an investor-subsidized service is Uber, which raised nearly $ 20 billion in venture capital before going public. During part of 2015, the company was burning $ 1 million per week in incentives for drivers and drivers in San Francisco alone, according to report by BuzzFeed News.
But the clearest example of a jarring pivot to profitability could be the electric scooter business.
Don’t forget the scooters? Before the pandemic, you couldn’t walk the sidewalk of a major American city without seeing one. Part of the reason they took off so quickly is that they were ridiculously cheap. Bird, the world’s largest scooter startup, charged $ 1 to start a ride, then 15 cents a minute. For short trips, renting a scooter was often cheaper than taking the bus.
But these fees were nothing close to the actual cost of a Bird ride. Scooters broke frequently and had to be constantly replaced, and the company was spending money just to maintain its service. In 2019, Bird was losing $ 9.66 for every $ 10 he earned on rides, according to a recent presentation to investors. That’s a shocking number, and the kind of sustained losses that are only possible for a Silicon Valley startup with extremely patient investors. (Imagine a grocery store that charged $ 10 for a sandwich with ingredients costing $ 19.66, then imagine how long that grocery store would stay in business.)
Losses from the pandemic, coupled with the pressure to make a profit, forced Bird to cut corners. It has increased its prices – a Bird now costs as much as $ 1 plus 42 cents a minute in some cities – built more sustainable scooters and revamped its fleet management system. In the second half of 2020, the company made $ 1.43 in profit for every $ 10 ride.
As an urban millennial enjoying a good deal, I could – and often do – lament the disappearance of these subsidies. And I love hearing from people who have discovered even better deals than me. (essay by Ranjan Roy “DoorDash and Pizza Arbitration”, around the time he realized that DoorDash was selling pizza from his friend’s restaurant for $ 16 while paying the restaurant $ 24 per pizza, and ordered dozens of pizzas from the restaurant while pocketing the $ 8 difference, is a classic of the genre.)
But it’s hard to fault these investors for wanting their companies to make a profit. And, at a broader level, it is probably good to find more efficient uses of capital than to give discounts to the well-to-do city dwellers.
Back in 2018, I wrote that the whole economy was starting to look like MoviePass, the subscription service whose irresistible and deeply unprofitable offering of daily movie tickets for a flat-rate subscription of $ 9.95 paved the way for its decline. Companies like MoviePass, I thought, were trying to defy the laws of gravity with business models that assumed that if they reached a huge scale, they would be able to flip a switch and start making money. at some point. (This philosophy, which was more or less invented by Amazon, is now known in tech circles as “blitzscaling”.)
There is still a lot of irrationality in the market, and some startups are still burning huge piles 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 change in part due to the sale of its autonomous driving unit, and a big improvement, believe it or not, from the same quarter last year when it lost $ 3 billion. Uber and Lyft are committed to becoming profitable on an adjusted basis this year. Lime, Bird’s main electric scooter competitor, made its first quarterly profit last year, and Bird – which recently filed for an IPO through a SPAC at a valuation of $ 2.3 billion – predicted a better economy in the years to come.
The profits are good for investors, of course. And while it is painful to pay unsuccessful prices for our extravagances, there is also some justice to that. Hire a private driver to take you through Los Angeles during rush hour should cost more than $ 16, if everyone in this transaction is paid fairly. Have someone clean your house, do your laundry, or deliver your dinner should be a luxury, if there is no exploitation involved. The fact that some high-end services are no longer easily affordable for the semi-rich may seem like a worrying development, but it may be a sign of progress.