ARTICLE: The millennial urban lifestyle is about to increase in cost.

[phcitywarrior]

The Millennial Urban Lifestyle Is About to Get More Expensive

As WeWork crashes and Uber bleeds cash, the consumer-tech gold rush may be coming to an end.

Several weeks ago, I met up with a friend in New York who suggested we grab a bite at a Scottish bar in the West Village. He had booked the table through something called Seated, a restaurant app that pays users who make reservations on the platform. We ordered two cocktails each, along with some food. And in exchange for the hard labor of drinking whiskey, the app awarded us $30 in credits redeemable at a variety of retailers.


I am never offended by freebies. But this arrangement seemed almost obscenely generous. To throw cash at people every time they walk into a restaurant does not sound like a business. It sounds like a plot to lose money as fast as possible—or to provide New Yorkers, who are constantly dining out, with a kind of minimum basic income.

“How does this thing make any sense?” I asked my friend.

“I don’t know if it makes sense, and I don’t know how long it’s going to last,” he said, pausing to scroll through redemption options. “So, do you want your half in Amazon credits or Starbucks?”

Derek Thompson: The best economic news no one wants to talk about

Idon’t know if it makes sense, and I don’t know how long it’s going to last. Is there a better epitaph for this age of consumer technology?



Starting about a decade ago, a fleet of well-known start-ups promised to change the way we work, work out, eat, shop, cook, commute, and sleep. These lifestyle-adjustment companies were so influential that wannabe entrepreneurs saw them as a template, flooding Silicon Valley with “Uber for X” pitches.


But as their promises soared, their profits didn’t. It’s easy to spend all day riding unicorns whose most magical property is their ability to combine high valuations with persistently negative earnings—something I’ve pointed out before. If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never recorded a dime in earnings, or have seen their valuations fall by more than 50 percent.

These companies don’t give away cold hard cash as blatantly as Seated. But they’re not so different from the restaurant app. To maximize customer growth they have strategically—or at least “strategically”—throttled their prices, in effect providing a massive consumer subsidy. You might call it the Millennial Lifestyle Sponsorship, in which consumer tech companies, along with their venture-capital backers, help fund the daily habits of their disproportionately young and urban user base. With each Uber ride, WeWork membership, and hand-delivered dinner, the typical consumer has been getting a sweetheart deal.


For consumers—if not for many beleaguered contract workers—the MLS is a magnificent deal, a capital-to-labor transfer of wealth in pursuit of long-term profit; the sort of thing that might simultaneously please Bernie Sanders and the ghost of Milton Friedman.

But this was never going to last forever. WeWork’s disastrous IPO attempt has triggered reverberations across the industry. The theme of consumer tech has shifted from magic to margins. Venture capitalists and start-up founders alike have re-embraced an old mantra: Profits matter.

And higher profits can only mean one thing: Urban lifestyles are about to get more expensive.

The idea that companies like Uber and WeWork and DoorDash don’t make a profit might come as a shock to the many people who spend a fair amount of their take-home pay each month on ride-hailing, shared office space, or meal delivery.

There is a simple explanation for why they’re not making money. The answer, for finance people, has to do with something called “unit economics.” Normal people should think of it like this: Am I getting ripped off by these companies, or am I kinda-sorta ripping them off? In many cases, the answer is the latter.

about $460 to recruit each new member, despite making less than $400 per customer. From afar, the company looked like a powerhouse. But from a unit-economics standpoint—that is, by looking at the difference between customer value and customer cost—Blue Apron wasn’t a “company” so much as a dual-subsidy stream: first, sponsoring cooks by refusing to raise prices on ingredients to a break-even level; and second, by enriching podcast producers. Little surprise, then, that since Blue Apron went public, the firm’s valuation has crashed by more than 95 percent.

Blue Apron is an extreme example. But its problems are not unique. WeWork’s valuation crumbled when investors saw the company was losing more than $1 billion a year. Peloton’s stock got crushed when investors balked at its growing sales and marketing costs. Lyft and Uber may collectively lose $8 billion this year, in large part because the companies spend so much money trying to acquire new customers through discounts, promotions, and credits. Unit economics will have its revenge—just as it did after the last dot-com boom.

For years, corporate promises rose as profits fell. What’s coming next is the promise-profit convergence. Talk of global conquest will abate. Prices will rise—for scooters, for Uber, for Lyft, for food delivery, and more. And the great consumer subsidy will get squeezed. Eating out and eating in, ride-hailing and office-sharing, all of it will get a little more expensive. It was a good deal while it lasted.

 

[Dorian Breh]

Stupid article this has very little to do with millenials and everything to do with the venture capital pump and dump ponzi scheme that supported We Work and other fraudulent endeavors.

All these companies would do the "counterintuitive" strategy of losing money to build market share. This has been going on for long enough that even uneducated investors can clearly see that the financial losses were not worth the market share.

The article argues that losing money to build market share will no longer be as prevalent.

 

[88m3]

article is laughable

 

[ogc163]

Thompson consistently writes articles conflating all "millenials" with moderate to highly paid coastal living yuppie millienials.

 

[phcitywarrior]

Stupid article this has very little to do with millenials and everything to do with the venture capital pump and dump ponzi scheme that supported We Work and other fraudulent endeavors.

All these companies would do the "counterintuitive" strategy of losing money to build market share. This has been going on for long enough that even uneducated investors can clearly see that the financial losses were not worth the market share.

The article argues that losing money to build market share will no longer be as prevalent.

The overarching theme is that some of the items that have been hip/trendy in the urban millennial lifestyle are about to get expense because the economics of it all has to make sense at the end of the day. Sure, the VCs sponsored/subsidized it, but again, the end consumer will feel the end of it once the prices start going up. I think it's a nice article and relevant to my demographic.

 

[re'up]

I just turned 34, and while all I use is Lyft, (I don't drive, and have doubled down on not wanting to) this is a fascinating and potentially personally impactful possibility.

I think that the economic soft spots that Lyft and Uber live in, well get worse, so they will continue, and even get cheaper and cheaper. This may be a losing bet. esp with increased regulation in California.

 

[Dorian Breh]

The overarching theme is that some of the items that have been hip/trendy in the urban millennial lifestyle are about to get expense because the economics of it all has to make sense at the end of the day. Sure, the VCs sponsored/subsidized it, but again, the end consumer will feel the end of it once the prices start going up. I think it's a nice article and relevant to my demographic.

I don't know if I buy it though.

If the gig economy tanks, the purchasing power of many millenials who make or supplement income with gigs drops too.

The repurcussions of something like that are far worse than not being able to get Grubhub delivery.

And, for those of us with more stable and recession proof jobs it could work the other way entirely since our relative purchasing power increases.

 

[Capital Steez]

As 28 year old in Chicago who uses Lyft, Uber, GrubHub, Prime Now, etc...

I feel attacked .
Yet, I fully understand that these business models are not sustainable. Hence, why I try to take full advantage of them

 

[88m3]

Thompson consistently writes articles conflating all "millenials" with moderate to highly paid coastal living yuppie millienials.

He probably unironically wrote this in a coffee shop in Wburg

 

[phcitywarrior]

I don't know if I buy it though.

If the gig economy tanks, the purchasing power of many millenials who make or supplement income with gigs drops too.

The repurcussions of something like that are far worse than not being able to get Grubhub delivery.

And, for those of us with more stable and recession proof jobs it could work the other way entirely since our relative purchasing power increases.

The author left out a key concept that is crucial to how these start-ups work: "blitzscaling". Essentially growing as quickly as possible, often times at a marginal loss, with the belief that you can "grow" your way into profitability once you get a large enough user base. Many VCs bought into/sold this concept which fueled the rise of a lot of these consumer tech platforms and services. But the VCs were essentially subsidizing these companies (aka throwing more cash at unprofitable businesses) in an effort to grow their user base, either in hope for profitability, or, in an attempt to dump the bag to another party. That subsidy was passed on to the the end consumer. That subsidy is baked into activities/transactions that the author argues is very prevalent in the urban millennial lifestyle.

I think he's right. See, even for us with more stable jobs, we'd be hit too.

An uber ride from Point A to Point B in 2015 was $7. Many people could use it. In 2020, it might be $20. Even to the better off workers, it adds up, so people start to cut back or look for alternatives further leading to these companies deterioration.

If you look at the GDP figures in the US, much of the growth has come from discretionary spending from consumers. Think shopping, eating out, travel and entertainment. If you look at the these discretionary areas, you'll notice some big tech players in these spaces. AirBnb for travel, Postmates and GrubHub for eating out etc.

The gravy train was gonna stop sooner or later. I remember reading some articles about how early Uber drivers were making north of $100k working just shy of 40hrs.

Recessions, to a degree, clear out excesses (greed) and bad economics in the markets. This consumer tech market is at peak excess.

 

[Mook]

I don't know if I buy it though.

If the gig economy tanks, the purchasing power of many millenials who make or supplement income with gigs drops too.

The repurcussions of something like that are far worse than not being able to get Grubhub delivery.

And, for those of us with more stable and recession proof jobs it could work the other way entirely since our relative purchasing power increases.

Uber is losing money even though they don't do shyt and take 25%. It's over for these charlatans. Taxis were a luxury for a reason. Autistic people are the woat, they think everything can be solved with code. :mjlpl:

 

[Dorian Breh]

@phcitywarrior sounds like we are about on the same page. These ridiculous valuations are ova and a recession coming.

God knows where that will leave us but it's unlikely to be more comfortable than we are today.

I just don't know if all these front end coders getting rebased from VC salaries to the blue collar salary that the job deserves won't drive down apt rents in tech economy cities to the point it balances out. That's what I don't know.

 

[Hood Critic]

Businesses like Uber and Lyft were created as long term investments because they were built on the same model as the cable company offering you premium channels or a discounted rate for 6 months. They looked at churn rates and understood if you can hold on to a customer for a specific amount of time they were a lot less likely to cancel their service.

The gig economy turned that model on its head making it a "lifestyle" that most people will ultimately accept and continue to use as the increases in price rises to a corrective point.

 

[O.Red]

@phcitywarrior sounds like we are about on the same page. These ridiculous valuations are ova and a recession coming.

God knows where that will leave us but it's unlikely to be more comfortable than we are today.

I just don't know if all these front end coders getting rebased from VC salaries to the blue collar salary that the job deserves won't drive down apt rents in tech economy cities to the point it balances out. That's what I don't know.

 

[ORDER_66]

Wtf is an urban millennial?!