A few years ago, while on a work trip in Los Angeles, I asked for an Uber to get through the city at rush hour. I knew it was going to be a long ride, so I worked up the courage to fork out between $ 60 and $ 70.
Instead, the app set a price that blew me away: $ 16.
Experiences of this kind were common during the golden age of the Millennial Lifestyle Allowance, the name I like to give to the period spanning roughly 2012 to early 2020, when many of the daily activities of twentysomethings and thirties of the big cities were inadvertently covered by Silicon Valley venture capitalists.
For years, these grants allowed us to live Balenciaga lifestyles on Banana Republic budgets. Collectively, we took millions of Uber and Lyft rides that moved us like bourgeois royalty while splitting the bill with those companies’ investors. We bring MoviePass to the bankruptcy by taking advantage of your tickets to see all the movies we wanted for $ 9.95 a month and taking so many subsidized spinning classes that ClassPass was seen forced to cancel your unlimited plan of $ 99 per month. We fill graveyards with the corpses of food delivery startups — Maple, Sprig, SpoonRocket, Munchery — just by accepting their low-priced gourmet meal deals.
The investors in these companies had no intention of financing our decline. They just wanted to give traction to their startups, which needed to attract customers quickly to establish a dominant position in the market, eliminate competition and justify their stratospheric valuations. So they flooded those companies with cash, and often that trickled down to users through artificial pricing and generous incentives.
Now, users are realizing for the first time – either from the disappearance of subsidies or just from an increase in end-of-pandemic demand – that their luxurious habits actually come at luxurious prices.
“Today my Uber ride from Midtown to JFK Airport cost the same as my flight from JFK to San Francisco,” tweeted recently Sunny Madra, a vice president of Ford’s venture capital incubator, along with a screenshot of a receipt showing she had spent nearly $ 250 on a trip to the airport.
“Airbnb put too much cream on their potatoes,” he said. complained another Twitter user. “Nobody is going to keep paying $ 500 to stay in an apartment for two days if they can pay $ 300 to stay in a hotel with a pool, room service, free breakfast and daily cleaning. Open your eyes. LOL “.
Some of these companies have been tightening their belts for years. However, the pandemic seems to have emptied what was left in the bidding basket. The average ride for Uber and Lyft costs 40 percent more than a year ago, according to Rakuten Intelligence, and food delivery apps like DoorDash and Grubhub have increased their rates steadily throughout the last year. In the first quarter of 2021, the average daily rate for an Airbnb rental property increased 35 percent compared to the same quarter a year earlier, according to the company’s financial documents.
Part of what happens is that, as the demand for these services increases, companies that once had to compete for customers are now facing a glut of them. About and Lyft have struggled with a driver shortage, and Airbnb’s rates reflect a surge in demand for narrow destinations and a shortage of available spots.
In the past, companies might be able to offer promotions or incentives to prevent customers from being hit by the price and preferring another service. But now they are shifting the subsidies to the provider – for example, Uber recently created a $ 250 million “driver stimulus” fund – or eliminating them altogether.
I confess that for years I was gladly part of this subsidized economy (memorably, my colleague Kara Swisher called this phenomenon “asylum for millennials”). Washio would take my clothes from the laundry room, Homejoy would clean my house, and the valet de Luxe would park my car – all those startups promised cheap and revolutionary on-demand services, but closed because they were not profitable. I even bought a used car through a venture capital-backed start-up called Beepi, which offered top-notch service, mysteriously low prices, and delivered the car wrapped in a gigantic bow tie, as seen in TV commercials ( As it was expected, Beepi closed in 2017, after burning $ 150 million in venture capital).
These subsidies don’t always end badly for investors. Some venture capital-backed companies, like Uber and DoorDash, have been able to hold out until their initial public offerings, keeping their promise that investors will ultimately see a return on their money. Other companies have been acquired or have been able to successfully raise their prices without driving away customers.
Uber, a company that raised nearly $ 20 billion in venture capital before entering the public markets, valley is perhaps the most famous example of an investor-subsidized service. For part of 2015, the company was spending $ 1 million to the week in incentives for drivers and passengers in San Francisco alone, according to a BuzzFeed News report.
But the clearest example of a staggering tipping point for profitability might be the electric scooter business.
Do you remember the scooters? Before the pandemic, you couldn’t walk the sidewalks of major cities in the United States 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 was often cheaper than taking the bus.
However, those fares did not represent the true cost of a Bird trip at all. Scooters broke down often and needed constant replacement; In addition, the company was wasting money to keep the service going. Until 2019, Bird was losing $ 9.66 for every $ 10 it earned on travel, according to one recent investor presentation. That’s shocking and the kind of sustained losses that are possible only for a Silicon Valley start-up with extremely patient investors (imagine a sandwich and salad place that charges $ 10 for a sandwich with ingredients that cost 19.66 d) imagine how long it would stay open. the restaurant).
Losses related to the pandemic, coupled with pressure to make a profit, forced Bird to save. It increased its prices – in some cities, a Bird trip now costs up to $ 1 plus 42 cents a minute – built more durable scooters and remodeled its fleet management system. During the second half of 2020, the company earned $ 1.43 for each $ 10 trip.
I am an urban millennial enjoying a good deal, and as such I could – and often do – lament the disappearance of those subsidies. And I enjoy hearing about people who discovered even better deals than I did (Ranjan Roy’s essay stands out as a classic of the genre “DoorDash and Pizza arbitrationAbout the time Roy realized that DoorDash was selling the pizzas from a friend’s restaurant for $ 16 but was paying the restaurant $ 24 for pizza, so the friend proceeded to order dozens of pizzas from the restaurant while I was pocketing $ 8 difference).
However, it is difficult to criticize these investors for wanting their companies to make a profit. Also, at a more general level, it may be a good idea to have more efficient uses of capital than to give discounts to well-to-do urbanites.
In 2018, I wrote that the entire economy was beginning to resemble MoviePass, the subscription service whose irresistible and unprofitable offer of daily movie tickets for a fixed price of $ 9.95 paved the way for its decline. He thought that companies like MoviePass wanted to defy the laws of gravity with business models that assumed that if they achieved massive scale, they would be able to flip a switch and start making money at some point (in ethical circles, which more or less invented Amazon, now is known What lightning scale).
There is irrationality to spare in the market and some startups continue to burn huge mountains of money in search of growth. However, when those companies mature, they seem to discover the benefits of financial discipline. About lost just $ 108 million in the first quarter of 2021 – a change that can in part be attributed to the sale of its autonomous vehicle division and a huge improvement, believe it or not, compared to the same quarter. last year, when he lost $ 3 billion. Both Uber and Lyft have promised to be profitable this year on a tight basis. Lime, Bird’s main competitor in electric scooters, generated its first quarterly profit last year and Bird, which recently submitted its documentation to enter the public markets through a Purpose Procurement Company Esposito Espo SPAC, for At a valuation of $ 2.3 billion, you’ve projected better profitability for years to come.
Of course the returns are good for investors. And while it hurts to pay subsidy-free prices for our extravagances, there is also a sense of justice. Hire a private driver to drive you around Los Angeles during rush hour should cost more than $ 16, if everyone in that transaction receives fair compensation. Have someone 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 so easily affordable for the semi-wealthy might seem like a worrisome development, but perhaps it is a sign of progress.