A few years ago, during a work trip in Los Angeles, I asked Uber to drive around the city. I knew it was going to be a long ride, so I mustered up the courage to fork out for between $60 and $70.
Instead, the app set a price that blew me away: $16.
Such experiences were common during the Golden Age of the Millennial Lifestyle Allowance, the name I want to give from about 2012 to early 2020, when many of the daily activities of the twentysomethings and thirties of big cities were inadvertently covered in silicon. Valley venture capitalist.
Over the years, these grants have allowed us to live the Balenciaga lifestyle on a Banana Republic budget. Collectively, we’ve taken millions of Uber and Lyft rides that cost us bourgeois royalty, splitting the bills with investors in those companies. we pick up moviepass To bankruptcy Taking advantage of our 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 $99 per month unlimited plan. We fill graveyards with the corpses of food delivery startups — Maple, Sprig, SpoonRocket, Munchery — simply by accepting their low-priced gourmet food deals.
Investors in these companies had no intention of funding our decline. They just wanted to give traction to their startups, which needed to quickly attract customers to establish a dominant position in the market, eliminate competition, and justify their stratospheric valuation. So they flooded those companies with cash, and often duped users through artificially low prices and generous incentives.
Now, users are realizing for the first time – either from the disappearance of subsidies or just a surge in pandemic demand – that their fancy habits come at really great prices.
“Today, my Uber trip from Midtown to JFK Airport costs the same as my flight from JFK to San Francisco,” tweeted Recently Sunny Madra, vice president of Ford’s venture capital incubator, came up with a screenshot of a receipt showing she had spent about $250 on a trip to the airport.
“Airbnb put too much cream on their potatoes,” he said. Complained Another Twitter user. “Nobody would pay $500 to live in an apartment for two days if they could pay $300 to stay in a hotel with pool, room service, free breakfast, and daily cleaning. Open your eyes. Tremendous Laughter”.
Some of these companies have been gearing up for years. However, the pandemic seems to have emptied what was left in the bidding basket. Average ride cost for Uber and Lyft 40 percent more According to Rakuten Intelligence, and food delivery apps like DoorDash and Grubhub have more than a year ago Constantly increasing your rates throughout the last year. According to the company’s financial documents, in the first quarter of 2021, the average daily rate for Airbnb rental properties rose 35 percent compared to the same quarter a year ago.
Part of what’s happening is that as demand for these services grows, companies that once had to compete for customers are now coming to terms with them. Uber and Lyft are grappling with driver shortages, and Airbnb’s rates reflect an increase in demand for summer destinations and a lack of available places.
In the past, companies may have been able to offer promotions or incentives to prevent customers from being swayed by prices and preferring another service. But now they’re shifting subsidies back to the provider — for example, Uber recently created a $250 million “driver incentive” fund — or eliminating them altogether.
I admit that for years I was part of this subsidized economy (memorably, my colleague Kara Swisher called this phenomenon “refuge for millennials”). Washio would pick up my clothes from the laundry room, HomeJoy would clean my house, and Valet de Luxe would park my car—all those startups that promised affordable and revolutionary on-demand services, but They closed because they weren’t profitable. I also bought a used car through a venture capital-backed start-up called BP, which offered top-notch service, mysteriously low prices, and delivered the car wrapped in a giant bow tie, as that was seen in TV commercials (as expected), BP closed in 2017, after burning $150 million in venture capital).
These subsidies are not always bad for investors. Some venture capital-backed companies, such as Uber and DoorDash, have been able to hold off until their initial public offering, delivering on their promise that investors will eventually see a return on their money. Other companies have been acquired or have been able to successfully raise their prices without turning away customers.
Uber, a company that raised nearly $20 billion in venture capital before entering the public markets, is perhaps the best-known example of an investor-subsidized service. For part of 2015, the company . was spending $1 million on Week In incentives for drivers and passengers in San Francisco alone, a . According to buzzfeed news report.
But the most obvious example of a staggering tipping point for profitability may be the electric scooter business.
Do you remember Scooter? Before the pandemic, you couldn’t walk without seeing the sidewalks of major cities in the United States. The reason they took off so fast is because they were ridiculously cheap. Bird, the largest scooter startup, charges $1 and then 15 cents per minute to start the journey. For short trips, renting a scooter was often cheaper than taking a bus.
However, those fares did not at all represent the actual cost of the bird trip. Scooters often wear out and need frequent replacement; In addition, the company was wasting money to keep the service running. As of 2019, Bird was losing $9.66 for every $10 earned on travel, according to a Recent Investor Presentation. This figure is staggering and the kind of sustained losses that are only possible for Silicon Valley startups with extremely patient investors (imagine a sandwich and salad place charging $10 for a sandwich with toppings costing $19.66 and then imagine how long the restaurant will be open if it lasts).
Pandemic-related losses, coupled with pressure to make a profit, forced Bird to save. It raised its prices — in some cities, a bird trip now costs up to $1 plus 42 cents a minute — created more durable scooters and revamped its fleet management system. During the second half of 2020, the company earned $1.43 for every $10 trips.
I’m an urban millennial enjoying a good deal, and thus I can – and often do – mourn the disappearance of those subsidies. And I enjoy hearing about people who found offers even better than me (Ranjan Roy’s essay stands as a classic of the genre “DoorDash and Pizza Arbitrage“, about the time Roy realized DoorDash was selling pizza from a friend’s restaurant for $16, but was paying the restaurant $24 for the pizza, so the friend ordered dozens of pizzas from the restaurant. while I pocketed the difference of $ 8 )
However, it’s hard to criticize these investors for wanting their companies to make a profit. Also, on a more generalized level, it may be good to find more efficient uses for capital than discounting affluent urbanites.
In 2018, I wrote That the entire economy was beginning to resemble MoviePass, the subscription service whose irresistible and unprofitable offering of daily movie tickets for a fixed price of $9.95 led to its downfall. He thought that companies like MoviePass wanted to defy the laws of gravity with business models that assumed that if they achieved mass, they would be able to flip a switch and start making money at some point. (In tech circles, this philosophy, which more or less invented Amazon, now is known What power scaling)
There is irrationality in the market to spare and some startups keep burning huge mountains of money in search of growth. However, as those companies mature, they discover the benefits of financial discipline. Uber lost just $108 million in the first quarter of 2021 — a change that can be attributed to sales of its autonomous vehicle division and a major improvement, believe it or not, compared to the same quarter. Last year, when it lost $3 billion. Both Uber and Lyft have promised to be profitable this year on a tight basis. Bird’s main competitor in electric scooters, Lime, posted its first quarterly profit last year, and Bird, which recently entered the public markets through a $2.3 billion valuation of a special purpose buying company (better known as SPAC). Have submitted your paperwork to) Better profitability forecast for the coming years.
Of course the returns for the investors are good. And while it hurts to pay a subsidy-free price for our extravagance, there is also a sense of justice. Hire a private driver to drive you around Los Angeles during rush hour needed Costs in excess of $16, if everyone in that transaction is properly compensated. Did someone clean your house, do your laundry, or bring you dinner? needed Be a luxury, if no exploitation is involved. The fact that some high-end services are no longer so readily affordable to the semi-wealthy may sound like a worrying development, but perhaps it is a sign of progress.