This “ millennial lifestyle” appears to have been out of touch with the real. The ACTUAL (existing in fact; typically as contrasted with what was intended, expected, or believed). Is reality now rearing it’s head?
Something beyond rising energy and labor costs is leading to sticker shock on once-cheap urban amenities.
Several weeks ago, I needed a ride home after some late-night drinks about two miles from my place in Washington, D.C. I pulled up the Uber app and entered my address. When the price on the screen popped up, I assumed I’d entered the wrong street, and perhaps the wrong state. I carefully retyped. But the same price appeared on the screen: $50.
That’s outrageous, I thought; $50 for a 10-minute ride? (One can always walk) Then I kept thinking. Aren’t gas prices and inflation near half-century highs? Isn’t the labor market so tight that low-paid workers are switching jobs at historic rates? Isn’t nominal wage growth rising fastest for the kind of workers most likely to drive for Uber? Yes, yes, and yes.
For the past decade, people like me—youngish, urbanish, professionalish—got a sweetheart deal from Uber, the Uber-for-X clones, and that whole mosaic of urban amenities in travel, delivery, food, and retail that vaguely pretended to be tech companies. Almost each time you or I ordered a pizza or hailed a taxi, the company behind that app lost money. In effect, these start-ups, backed by venture capital, were paying us, the consumers, to buy their products.
It was as if Silicon Valley had made a secret pact to subsidize the lifestyles of urban Millennials.
As if they were being groomed for predation? (the action of attacking or plundering)
As I pointed out three years ago, if you woke up on a Casper mattress, worked out with a Peloton, Ubered to a WeWork, ordered on DoorDash for lunch, took a Lyft home, and ordered dinner through Postmates only to realize your partner had already started on a Blue Apron meal, your household had, in one day, interacted with eight unprofitable companies that collectively lost about $15 billion in one year.
These start-ups weren’t nonprofits, charities, or state-run socialist enterprises. Eventually, they had to do a capitalism and turn a profit. But for years, it made a strange kind of sense for them to not be profitable. (It did? Such a weird thing to say?) With interest rates near zero, many investors were eager to put their money into long-shot bets. If they could get in on the ground floor of the next Amazon, it would be the one-in-a-million bet that covered every other loss. So they encouraged start-up founders to expand aggressively, even if that meant losing a ton of money on new consumers to grow their total user base.
Consider this simplified example. Let’s say that the ingredient, labor, and transportation costs of a pizza delivery in New York City average $20. If a company charges $25 for the average NYC delivery, it will make a profit. But if a start-up charges $10 for the same thing, it will lose money but get a lot more pizza orders. More pizza orders means more total customers, which means more overall revenue. This arrangement is tailor-made for a low-rate environment, in which investors are attracted to long-term growth more than short-term profit. As long as money was cheap and Silicon Valley told itself the next world-conquering consumer-tech firm was one funding round away, the best way for a start-up to make money from venture capitalists was to lose money acquiring a gazillion customers.
I call this arrangement the Millennial Consumer Subsidy. Now the subsidy is ending. Rising interest rates turned off the spigot for money-losing start-ups, which, combined with energy inflation and rising wages for low-income workers, has forced Uber, Lyft, and all the rest to make their services more expensive. Meanwhile, global supply chains haven’t been able to keep up with domestic consumer demand, which means delivery times for major items like furniture and kitchen equipment have bloomed from “three to five days” to “sometime between this fall and the heat death of the universe.” That means higher prices, higher margins, fewer discounts, and longer wait times for a microgeneration of yuppies used to low prices and instant deliveries. The golden age of bougie on-demand urban-tech discounting has come to a close.
But the heavily discounted prices of the 2010s aren’t coming back. The Millennial Consumer Subsidy is over, and for the foreseeable future, metro residents will have to go about living the old-fashioned way: by paying what things actually cost.
Share some thoughts? The millenial lifestyle is not one I can relate to- considering what the interest rates were on my first and only home. How many clunker cars we (hubby and I had in our lifetime thus far) And how we are stuck in this same home due to the insane house prices. Not riding a Peloton, but, riding a real bicycle. Outside. Same with walking. Anyway…
4 replies on “The End of the Millennial Lifestyle Subsidy”
“As if they were being groomed for predation? (the action of attacking or plundering”
Kinda, its make it more attractive than alternatives so you can reel in a committed customer base. Try expanding this as long as possible by making losses potentially. Than when the customer pool is consistent and large enough or/and technology has improved enough. Increase prices to keep majority of the customer base and make profit to pay of the debt and income.
Because money was so cheap to borrow, this just kept going on and on, but not long enough for the services to be fully automated and now this increase in fee’s.
Personally I am against interest rates, but with that stance. Money should not be easy to produce, in that situation you won’t be lending money willy nilly.
Thanks Kaz
“Because money was so cheap to borrow, this just kept going on and on, but not long enough for the services to be fully automated and now this increase in fee’s.”
Interesting on the idea of full automation. I’m not one who thinks we’ll ever reach that point, but, worth thinking about
Money should not be easy to produce, in that situation you won’t be lending money willy nilly.”
Excellent point!
“Interesting on the idea of full automation. I’m not one who thinks we’ll ever reach that point, but, worth thinking about”
Its the illusion of full automation I am worried about. America the land of make belief. I don’t have a fixed stance on it and I think full automation might be possible, but its not that simple to do and even if you reach that. You will always have the risk of backdoor to takeover the full automated system, or instruments are incorrectly calibrated. For Example ; Hypothetically self driving cars works, but a target entered the vehicle, backdoor is used and a ‘malfunction’ happened causing the vehicle to lose control take some people on the street goes full speed and hits a different vehicle full speed and the internal air-bags didn’t activate. They will say ow, this wouldn’t happen safety standards. But people cut corners, and it will happen here as well. It just needs Time.
If the people have accepted the illusion of full automation, than its full automation. Just like how the last 3 years passed by.
“If the people have accepted the illusion of full automation, than its full automation. Just like how the last 3 years passed by.”
I understand exactly what you are saying Kaz- and yet some of us did not accept the illusion of the past 3 years. Still, good point that could take us off on another direction entirely!