A few years ago, while on a work trip in Los Angeles, I called an Uber for a cross-town ride during rush hour. I knew it was going to be a long journey, and I steeled myself to pay more than $60 or $70.
Instead, the app issued a price that left me gaping: $16.
Experiences like this are common during the golden era of Millennial Lifestyle Subsidies, which I would call the period circa 2012 to early 2020, when many of the day-to-day activities of big cities in their 20s and 30s were quiet. borne by Silicon Valley venture capitalists.
Over the years, this subsidy allowed us to live the Balenciaga lifestyle on a Banana Republic budget. Collectively, we take millions of cheap Uber and Lyft rides, back and forth like bourgeois royalty while splitting the bill with the company’s investors. We plunged MoviePass into bankruptcy by taking advantage of an all-you-can-eat movie ticket offer of $9.95 per month, and taking so many subsidized screening classes that ClassPass was forced to cancel its $99 per month unlimited plan. We fill graves with carcasses of food delivery companies — Maple, Sprig, SpoonRocket, Munchery — just by accepting cheap gourmet food offers.
The investors of these companies did not set out to finance our decadence. They are simply trying to gain traction for their start-ups, all of which need to attract customers quickly to establish a dominant market position, weed out competitors and justify their soaring valuations. So they flood these companies with cash, which is often given to users in the form of low prices and generous incentives.
Now, users are noticing that for the first time – whether due to the loss of subsidies or simply a spike in demand at the end of the pandemic – their luxury habits are actually carrying a luxury price tag.
“Today my Uber ride from Midtown to JFK cost the same as my flight from JFK to SFO,” Sunny Madra, vice president at venture incubator Ford, recently said. tweeted, along with a screenshot of the receipt showing he had spent nearly $250 on the trip to the airport.
“Airbnb gets too many drops on their chips,” another Twitter user complain. “No one is going to keep paying $500 to stay in an apartment for two days when they can pay $300 to stay in a hotel that has a pool, room service, free breakfast & daily cleaning. Like being real lol. ”
Some of these companies have been tightening their belts over the years. But the pandemic appears to have emptied what’s left of the bargain. Uber and Lyft ride costs on average 40 percent more than last year, according to Rakuten Intelligence, and food delivery apps like DoorDash and Grubhub have steadily increased their fees over the past year. Airbnb’s average daily rental rate increased 35 percent in the first quarter of 2021, compared with the same quarter a year earlier, according to the company’s financial filings.
Part of what is happening is that as demand for these services soars, companies that once had to compete for customers are now dealing with redundant services. Uber and Lyft have struggled with driver shortages, and Airbnb fares reflect a surge in demand for summer vacations and a shortage of available listings.
In the past, companies may have offered promotions or incentives to prevent customers from getting sticker surprises and taking their business elsewhere. But now, they’re shifting subsidies to the provider side—Uber, for example, recently set up a $250 million “booster” fund—or scrapping them altogether.
I admit that I have happily taken part in this subsidized economy for many years. (My colleague Kara Swisher is impressive call it “helped live for millennials.”) I had my laundry delivered by Washio, my house cleaned by Homejoy and my car valet parked by Luxe—all start-ups that promised cheap and revolutionary on-demand services but closed down failing to turn a profit. I even bought a used car through a venture-backed start-up called Beepi, which offers white glove service and a very low price, and who shipped the car to me wrapped in a giant bow, as you can see in TV commercials. (Not surprisingly, Beepi closed in 2017, having spent $150 million in venture capital.)
These subsidies don’t always end badly for investors. Some venture-backed companies, such as Uber and DoorDash, have been able to hold out until their IPOs, fulfilling their promise that investors will eventually see a return on their money. Other companies have been acquired or managed to raise their prices without scaring customers.
Uber, which raised nearly $20 billion in venture capital before going public, is perhaps the best-known example of an investor-subsidized service. Over the span of 2015, the company burned $1 million per year week in driver and motorist incentives in San Francisco alone, according to a report by BuzzFeed News.
But the clearest example of a jarring pivot to profitability is perhaps the electric scooter business.
Remember the scooter? Before the pandemic, you couldn’t walk the sidewalks of America’s big cities without seeing them. Part of the reason they took off so quickly was because they were so cheap. Bird, the biggest scooter start-up, charges $1 to start the ride, and then 15 cents per minute. For short trips, renting a scooter is often cheaper than taking the bus.
But those costs don’t represent anything close to the true cost of the Bird’s trip. Scooters often break down and need to be replaced constantly, and the company spends money just to maintain its service. In 2019, Bird lost $9.66 for every $10 he made on the trip, according to a recent investor presentation. It’s a staggering number, and the kind of sustained loss that is only possible for Silicon Valley startups with very patient investors. (Imagine a grocery store charging $10 for a sandwich whose ingredients cost $19.66, then imagine how long the grocery store will stay in business.)
The pandemic-related losses, coupled with the pressure to turn a profit, forced Bird to trim its sails. That raised the price — Bird now costs $1 plus 42 cents per minute in some cities — building more durable scooters and revamping its fleet management system. During the second half of 2020, the company made a profit of $1.43 for every $10 trip.
As an urban millennial who enjoys good bargains, I can — and often do — regret the loss of these subsidies. And I love hearing about people finding better deals than me. (Ranjan Roy’s essay “DoorDash and the Pizza Arbitration,” about the time he realized that DoorDash was selling pizza from a 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, standing as a genre classic.)
But it’s hard to blame these investors for wanting their companies to make a profit. And, on a broader level, it may be better to find a more efficient use of capital than to discount wealthy urbanites.
Back in 2018, I wrote that the entire economy was starting to resemble MoviePass, a subscription service that offered irresistible and highly unprofitable daily movie tickets for a flat subscription fee of $9.95 paving the way for its decline. Companies like MoviePass, I think, are trying to defy the law of gravity with a business model that assumes that if they hit really big scale, they’ll be able to flip the switch and start making money at some point down the line. (This philosophy, which Amazon has more or less discovered, is now known in tech circles as “blitzscaling.”)
There is still a lot of irrationality in the market, and some start-ups are still spending a lot of money looking for growth. But as these companies mature, they seem to find the benefits of financial discipline. Uber lost just $108 million in the first quarter of 2021 — a change partly due to sales of its autonomous driving unit, and a huge increase, believe it or not, during the same quarter last year, when it lost $3 billion. Both Uber and Lyft have pledged to be profitable based on this year’s adjustments. Lime, Bird’s main electric scooter competitor, made its first quarterly profit last year, and Bird – which recently went public via SPAC at a $2.3 billion valuation – has projected a better economy in the coming years.
Good returns for investors, of course. And while it hurts to pay a subsidy-free price for our extravagance, there is also a certain justice to it. Hire a private driver to take you across Los Angeles during peak hours Should it costs more than $16, if everyone in the transaction is fairly compensated. Ask someone to clean your house, do your laundry, or deliver your dinner Should become a luxury, if there is no exploitation involved. The fact that some high-end services are out of reach for only the semi-rich may seem like a worrying development, but it may be a sign of progress.