A few years ago, while on a work trip in Los Angeles, I called an Uber for a rush-hour ride around town. I knew it was going to be a long journey and I steeled myself to pay over $ 60 or $ 70.
Instead, the app spat out a price that made my jaw drop: $ 16.
Experiences like this were common in the golden era of Millennial Lifestyle Subsidy, which I like to call the period from around 2012 to early 2020, when much of the daily activities of big city dwellers in the 20s and 30s were quietly drawn from venture capitalists from Silicon Valley.
For years these subsidies allowed us to live the Balenciaga lifestyle on the Banana Republic budget. Together, we’ve taken millions of cheap Uber and Lyft trips and hung around like real kings while sharing the bill with investors in those companies. We plunged MoviePass into bankruptcy by taking advantage of the all-you-can-watch cinema ticket offer for $ 9.95 per month and taking up so many subsidized spin courses that ClassPass was forced to abandon its unlimited plan cancel for $ 99 per month. We filled cemeteries with the carcasses of grocery delivery startups – Maple, Sprig, SpoonRocket, Munchery – just by accepting their offers on underpriced gourmet meals.
The investors in these companies didn’t want to fund our decadence. They were just trying to attract their startups, all of which needed to quickly attract customers in order to gain a dominant market position, crowd out competitors, and justify their rising valuations. So they inundated these companies with cash, often passed on to users in the form of artificially low prices and generous incentives.
Now, for the first time, users are noticing that their luxury habits are actually linked to luxury price tags – be it due to the elimination of subsidies or just an increase in demand after the end of the pandemic.
“Today my Uber trip from Midtown to JFK cost me the same as my flight from JFK to SFO,” tweeted Sunny Madra, vice president of Ford’s Venture Incubator, recently along with a screenshot of a receipt showing that he sold nearly 250 US dollars. Dollars had spent on a trip to the airport.
“Airbnb has too much dip on the chip,” complained another Twitter user. “No one is going to continue 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 cleaning. How real lol. “
Some of these companies have been tightening their belts for years. But the pandemic seems to have emptied the rest of the bargain bin. The average trip on Uber and Lyft costs 40 percent more than a year ago, according to Rakuten Intelligence, and grocery delivery apps like DoorDash and Grubhub have steadily increased their fees over the past year. The average daily price of an Airbnb rental increased 35 percent in the first quarter of 2021 compared to the same quarter last year, according to the company’s financial records.
Part of what is happening is that companies that once had to compete for customers are facing an abundance in the face of increasing demand for these services. Uber and Lyft are grappling with a driver shortage, and Airbnb prices reflect increasing demand for summer vacations and a lack of available listings.
In the past, companies may have offered promotions or incentives to deter customers from getting a sticker shock and relocating 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 getting rid of them altogether.
I admit that for years I have been part of this subsidized economy with relish. (My colleague Kara Swisher memorably called it “Assisted Living for Millennials.”) I got my laundry delivered by Washio, my house cleaned by Homejoy, and my car parked by Luxe – all startups promising affordable, revolutionary on-demand services but closed after no profit was made. I even bought a used car through a start-up called Beepi, which had white glove service and mysteriously low prices, and delivered the car to me wrapped in a giant ribbon like you see it on TV commercials. (Unsurprisingly, 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 were able to pull it through to their IPOs and deliver on their promise that investors would eventually get a return on their money. Other companies were acquired or were able to increase their prices successfully without deterring customers.
Uber, which raised nearly $ 20 billion in venture capital prior to going public, is possibly the best-known example of an investor-subsidized service. The company burned $ 1 million a week in driver and passenger incentives in San Francisco alone during 2015, according to a report from BuzzFeed News.
However, the clearest example of a harrowing fulcrum for profitability could be the electric scooter business.
Do you remember scooters? Before the pandemic, you couldn’t walk the sidewalk of a major American city without seeing one. One of the reasons they took off so quickly is because they were ridiculously cheap. Bird, the largest scooter start-up, charged $ 1 to start a ride, and then charged 15 cents a minute. For short trips, renting a scooter was often cheaper than taking the bus.
But these fees were nowhere near the actual cost of a Bird ride. The scooters broke down frequently and had to be constantly replaced, and the company shoveled money out the door just to keep service going. According to a recent investor presentation, Bird lost $ 9.66 for every $ 10 he made driving in 2019. That’s a shocking number that can only be achieved by a Silicon Valley start-up with extremely patient investors. (Imagine a deli charging $ 10 for a sandwich with ingredients costing $ 19.66, and then imagine how long that deli would stay in business.)
Pandemic losses coupled with pressures to make a profit forced Bird to trim the 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 revised its fleet management system. For the second half of 2020, the company made a profit of $ 1.43 for every $ 10 trip.
As an urban millennial with good business, I could – and often do – lament the disappearance of these subsidies. And I like to hear from people who have discovered even better offers than me. (Ranjan Roy’s DoorDash and Pizza Arbitrage essay about the time he found DoorDash selling pizzas from his friend’s restaurant for $ 16 while paying the restaurant $ 24 per pizza, and went on to dozens Ordering pizzas in the restaurant while pocketing the difference of $ 8 is 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, finding ways to use capital more efficiently than giving discounts to wealthy townspeople is probably good.
In 2018, I wrote that the entire economy resembles MoviePass, the subscription service whose irresistible, deeply unprofitable offering of daily movie tickets for a flat fee of $ 9.95 paved the way for its demise. Companies like MoviePass, I thought, were trying to defy the laws of gravity with business models that assumed that once they grew huge, they could flip a switch and eventually make money. (This philosophy, more or less invented by Amazon, is now known in tech circles as “lightning scaling.”)
There is still a lot of irrationality in the market and some startups are still burning huge piles of money looking for growth. But as they mature, these companies seem to be discovering the benefits of financial discipline. Uber lost just $ 108 million in the first quarter of 2021 – a change partly due to the sale of its autonomous drive unit, and a huge improvement, believe it or not, over the same quarter last year when it lost $ 3 billion. Both Uber and Lyft have pledged to become profitable on an adjusted basis this year. Lime, Bird’s main electric scooter competitor, posted its first quarterly profit last year, and Bird – which recently filed for an IPO through a SPAC valued at $ 2.3 billion – has forecast better economics for years to come.
Profits are of course good for investors. And while it is painful to pay subsidy-free prices for our extravagances, there is also a fairness to it. Hiring a private driver to get you around Los Angeles during rush hour should cost more than $ 16 if everyone is adequately compensated in this transaction. Getting someone to clean your house, do your laundry, or deliver your dinner should be a luxury when there is no exploitation involved. The fact that some high-end services are no longer readily affordable to the half-wealthy only may seem worrying, but perhaps it is a sign of progress.