A few years ago, while on a work trip in Los Angeles, I asked for an Uber to get around town during rush hour. I knew it was going to be a long drive, so I took the courage to spend between $ 60 and $ 70.
Instead, the app set a price that blew me away: $ 16.
Such experiences were common during the golden age of Millennial Lifestyle Subsidy, as I like to call the period from around 2012 to early 2020, when much of the daily activities of the 1920s and 30s of the big cities were accidentally carried out by venture capitalists from Silicon Valley.
For years these grants allowed us to live the Balenciaga lifestyle on the Banana Republic budget. Together, we’ve made millions of Uber and Lyft trips moving us like royalty while dividing the bill with investors in those companies. We went bankrupt MoviePass by using their tickets to see all the movies they wanted for $ 9.95 per month and taking so many subsidized spinning classes that ClassPass was forced to cancel its unlimited plan for $ 99 per month. We fill cemeteries with the bodies of food suppliers – Maple, Sprig, SpoonRocket, Munchery – just by accepting their cheap gourmet deals.
The investors in these companies had no intention of funding our decline. They just wanted to add traction to their startups, which needed to quickly attract customers in order to gain a dominant position in the market, eliminate the competition, and justify their stratospheric valuations. So they inundated these companies with cash, and that often trickled through artificially low prices and generous incentives to users.
Now, for the first time, users are realizing – either from the elimination of subsidies or simply from increasing demand after the end of the pandemic – that their luxurious habits do indeed come at luxurious prices.
“Today, my Uber trip from Midtown to JFK Airport costs the same as my flight from JFK to San Francisco,” tweeted Sunny Madra, vice president of Ford’s venture capital incubator, recently along with a screenshot of a receipt he received showed had spent nearly $ 250 on a ride to the airport.
“Airbnb put too much cream on their potatoes,” complained another Twitter user. “No one will continue to pay $ 500 to stay in an apartment for two days when 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 appears to have emptied the rest of the bidding basket. The average trip for 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 prices over the past year. In the first quarter of 2021, the average daily rate for an Airbnb rental increased 35 percent 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 faced with a deluge of them in the face of increasing demand for these services. Uber and Lyft are grappling with a driver shortage, and Airbnb’s tariffs reflect a surge in demand for summer destinations and a lack of available seats.
In the past, companies may have been able to offer promotions or incentives to keep customers from being price-hit and preferring a different service. But now they are shifting the subsidies to the provider – for example, Uber recently created a $ 250 million “driver stimulus” fund – or removing them altogether.
I confess that for years I was happy to be part of this subsidized economy (memorably, my colleague Kara Swisher called this phenomenon a “haven for millennials”). Washio would get my clothes out of the laundry room, Homejoy would clean my house, and the Valet de Luxe would park my car – all of these startups promised cheap and revolutionary on-demand services, but they closed because they weren’t profitable. I even bought a used car through a venture-backed start-up called Beepi, which had top-notch service and mysterious low prices, and delivered the car wrapped in a giant bow tie, as featured in TV commercials (no wonder Beepi has been 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 held out until they go public and keep their promise that investors will ultimately get a return on their money. Other companies were acquired or were able to successfully increase their prices without driving out customers.
Uber, a company that raised nearly $ 20 billion in venture capital before entering the public markets, is perhaps the most famous example of an investor-subsidized service. The company spent $ 1 million a week on incentives for drivers and passengers in San Francisco alone for part of 2015, according to a report from BuzzFeed News.
But the clearest example of an amazing turning point in profitability could be the electric scooter business.
Do you remember the scooters? Before the pandemic, you couldn’t walk the sidewalks of large cities in the United States without seeing one. One of the reasons they took off so quickly is because they were ridiculously cheap. Bird, the largest scooter startup, 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.
However, these tariffs did not reflect the actual cost of a Bird trip. Scooters often broke and had to be constantly replaced; Also, the company wasted money keeping the service going. As of 2019, Bird lost $ 9.66 for every $ 10 he made while traveling, according to a recent investor presentation. That number is shocking, and the kind of sustained losses only possible for a Silicon Valley startup with extremely patient investors (imagine a sandwich and salad shop costing $ 10 for a topped sandwich turned 19th century ($ 66, and then imagine how long the restaurant would take to stay open).
Pandemic-related losses coupled with profit pressures forced Bird to save. It raised its prices – a bird trip now costs up to $ 1 plus 42 cents a minute in some cities – built more durable scooters and revised its fleet management system. In the second half of 2020, the company made $ 1.43 for every $ 10 trip.
I’m an urban millennial who enjoys a lot, and as such I could – and often – lament the disappearance of these subsidies. And I enjoy hearing from people who have discovered even better deals than me (Ranjan Roy’s essay “DoorDash and Pizza Arbitrage” stands out as a genre classic about the time Roy discovered that DoorDash pizzas from a friend’s restaurant were for Sold 16 but paid the restaurant $ 24 for pizza, so friend ordered dozens of pizzas at the restaurant and pocketed $ 8 difference).
However, it is hard to criticize these investors for wanting their companies to make a profit. On a more general level, finding a more efficient use of capital than giving discounts to wealthy townspeople may also be good.
In 2018, I wrote that the entire economy began to resemble MoviePass, the subscription service whose irresistible and unprofitable offering of daily movie tickets for a fixed subscription of $ 9.95 paved the way for its demise. I thought companies like MoviePass wanted to defy the laws of gravity with business models that assumed that once they scale massive, they could eventually flip a switch and make money (in tech circles, this philosophy that Amazon more or less invented, is known today as lightning scaling).
There are irrationalities in the market and some startups continue to burn huge piles of money in search of growth. However, as these companies mature, they seem to discover the benefits of financial discipline. Uber lost just $ 108 million in the first quarter of 2021 – a change attributable in part to sales of its autonomous vehicle business and a huge improvement, believe it or not, compared to the same quarter last year that Uber lost $ 3 billion. Both Uber and Lyft have promised to be profitable on a tight basis this year. Lime, Bird’s main electric scooter competitor, made its first quarterly profit last year, and Bird, which recently completed its filing for entry into the public markets through a Special Purpose Procurement Company (better known as SPAC, valued at $ 2.3 billion predicts better profitability in the coming years.
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. Hiring a private chauffeur to drive you around Los Angeles during rush hour should cost more than $ 16 if everyone in that transaction gets adequate compensation. Having someone cleaning your house, washing your clothes, or bringing you dinner should be a luxury when there is no exploitation involved. The fact that some high-end services are no longer affordable for the half-rich may seem worrying, but it is perhaps a sign of progress.
Kevin Roose is a technology columnist and author of Future Proof: 9 Rules for Humans in the Age of Automation. @kevinroose • Facebook