A few years ago, while on a work trip in Los Angeles, I called an Uber for a ride around the city during rush hour. I knew it was going to be a long trip and I worked up the courage to pay more than $ 60 or $ 70.
Instead, the app came up with a jaw-dropping price: $ 16.
Experiences like these were common during the golden age of the Millennium Lifestyle Allowance, which is what I like to call the period from about 2012 to early 2020, when many of the daily activities of the late twenties and thirties the great city unfolded in silence. underwritten by Silicon Valley venture capitalists.
For years, these grants allowed us to live the Balenciaga lifestyle on Banana Republic budgets. Collectively, we took millions of cheap rides on Uber and Lyft, moving like bourgeois royalty as we split the bill with those companies’ investors. We dive into MoviePass bankrupt taking advantage of his $ 9.95-a-month all-you-can-see movie ticket offer and took so many subsidized spinning classes that ClassPass was forced to cancel your unlimited plan of $ 99 per month. We fill graveyards with the corpses of food delivery startups – Maple, Sprig, SpoonRocket, Munchery – simply by accepting their cheap gourmet meal deals.
The investors in these companies did not set out to finance our decline. They were just trying to get traction for their startups, all of which needed to attract customers quickly to establish a dominant position in the market, push in on competitors, and justify their high valuations. So they flooded these companies 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 due to the disappearance of subsidies or simply increased demand from the end of the pandemic, their luxury habits actually carry fancy price tags.
“Today my Uber ride from Midtown to JFK cost me as much as my flight from JFK to SFO,” Sunny Madra, vice president of Ford’s business incubator, said recently. tweeted, along with a screenshot of a receipt showing that he had spent nearly $ 250 on a trip to the airport.
“Airbnb got too deep into its chip,” another Twitter user She complained. “No one is going to keep paying $ 500 to stay in an apartment for two days when they can pay $ 300 to stay at a hotel that has a pool, room service, free breakfast, and daily cleaning. How to be real hahaha “.
Some of these companies have been tightening their belts for years. But the pandemic appears to have emptied what was left of the bargaining 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 have been constantly increasing your rates During the past year. The average daily rate for an Airbnb rental increased 35 percent in the first quarter of 2021, compared to the same quarter a year earlier, according to the company’s financial documents.
Part of what’s happening is that as demand for these services increases, companies that once had to compete for customers are now dealing with an overabundance of them. Uber and Lyft have been struggling with a driver shortage, and Airbnb’s fees reflect the growing demand for summer getaways and a shortage of available listings.
In the past, companies could have offered promotions or incentives to prevent customers from getting a surprise and taking their business elsewhere. But now, or they are transferring the subsidies to the provider side: Uber, for example, recently set up a $ 250 million “booster stimulus” fund, or eliminate it altogether.
I will confess that I happily participated in this subsidized economy for years. (My colleague Kara Swisher memorably call it “Assisted Living for Millennials”). Washio delivered my clothes to me, Homejoy cleaned my house, and Luxe parked my car – all startups that promised revolutionary and affordable services on demand, but then closed. no profit. I even bought a used car through a business-backed start-up called Beepi, which offered white glove service and mysteriously low prices, and delivered the car wrapped in a giant ribbon, as seen in TV commercials. . (As expected, Beepi closed in 2017, after spending $ 150 million on venture capital).
These subsidies don’t always end badly for investors. Some ventures backed companies, such as Uber and DoorDash, have been able to hold out until their IPOs, keeping their promise that investors would eventually see a return on their money. Other companies have been acquired or have been able to raise their prices successfully 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. During one stretch of 2015, the company was burning $ 1 million per week in incentives for drivers and passengers only in San Francisco, according to BuzzFeed News reports.
But the clearest example of a jarring turn to profitability might be the electric scooter business.
Do you remember the scooters? Before the pandemic, you couldn’t walk down the sidewalk in a large American city without seeing one. Part of the reason they took off so fast is that they were ridiculously cheap. Bird, the largest scooter startup, charged $ 1 to start a trip and then 15 cents a minute. For short trips, renting a scooter used to be cheaper than taking the bus.
But those fees didn’t represent anything close to the true cost of a bird ride. Scooters broke down frequently and constantly needed to be replaced, and the company was taking money out the door just to maintain its service. As of 2019, Bird was losing $ 9.66 for every $ 10 it earned on travel, according to a recent investor presentation. 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 deli that charges $ 10 for a sandwich whose ingredients cost $ 19.66, and then imagine how long that deli would stay.)
Losses related to the pandemic, coupled with pressure to turn a profit, forced Bird to trim his sails. It raised its prices (a Bird now costs up to $ 1 plus 42 cents a minute in some cities), built more durable scooters, and revamped its fleet management system. During the second half of 2020, the company made $ 1.43 in profit for each $ 10 Ride.
As an urban millennial who enjoys a good deal, you could, and often regret, the disappearance of these subsidies. And I enjoy hearing about people who discovered even better deals than I did. (Essay by Ranjan Roy “DoorDash and Pizza Arbitration”, About the time when he realized that DoorDash was selling pizzas from his friend’s restaurant for $ 16 while paying the restaurant $ 24 per pizza, and proceeded to order dozens of pizzas from the restaurant while pocketing the difference of $ 8, he stands as a classic of the genre.)
But it’s hard to blame these investors for wanting their companies to make a profit. And, on a broader level, it’s probably good to find more efficient uses for capital than giving discounts to wealthy city dwellers.
In 2018, I wrote that the entire economy was starting to look like MoviePass, the subscription service whose irresistible and deeply unprofitable offering of daily movie tickets for a fixed subscription fee 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 achieved massive scale, they could flip a switch and start making money at some point later. (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 still spend huge amounts 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 huge improvement, believe it or not, over the same quarter last year, when it lost $ 3 billion – and both it and Lyft have pledged to be profitable over a snug base. this year. Lime, Bird’s top electric scooter competitor, made its first quarterly profit last year, and Bird, which recently went public through a $ 2.3 billion valuation SPAC, has projected a better economy in the next years.
Profits are good for investors, of course. And while it is painful to pay unsubsidized prices for our extravagances, there is also some justice to it. Hiring a private driver to drive you around Los Angeles during rush hour should they cost more than $ 16, if everyone in that transaction receives fair compensation. Get someone to clean your house, wash your clothes, or bring you 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 merely semi-wealthy may seem like a worrying development, but perhaps it is a sign of progress.