Pixel Envy

Written by Nick Heer.

Gig Services to Become More Costly As Investors Begin to Question Valuations

Derek Thompson, the Atlantic:

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’ve read Seated’s guide for restaurants and a 2017 review and I still don’t understand how they’re able to offer a thirty percent money back reward for restaurant reservations booked through the app. It’s even more ridiculous than the Boost feature on Square’s Cash card, which only received compensation from a participating retailer earlier this year. It can’t possibly be paid for out of interchange fees, nor would any restaurant willingly refund a third of the cost of a menu item against already-slim profit margins.

Anyway — Thompson:

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 earned a dime 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.

It’s going to be a disaster if many of these arguably predatory businesses go bust: cities’ transportation networks will have to adjust, warranties won’t be honoured, and gig economy workers will be looking for jobs. When they raise their prices — even to a break-even point — we will all realize that these services are just as expensive as any traditional version of whatever they disrupted.