The End of the Future

We have all been living in the future. A future full of cheap, on-demand services willing to cater to your every whim. Need a ride, hail Uber. Need an idea for dinner? Blue Apron delivers a five-star meal kit to your home. Need a dozen Krystal burgers at 2am? Postmates brings it to your doorstep. But, the era of uber-cheap Uber and other subsidized, on-demand services is nearing an end. Yes, it’s true, the Millennial lifestyle subsidy is ending.

Those of us who lived through the dot-com era find this eerily familiar. Most millennials were learning to drive when the last era of subsidized, on-demand services came crashing back to earth. It ended in a dumpster fire of edgy businesses who tried to prove that profits were not necessary in the new world order.

Who can forget the Pets.com sock puppet ads? That company lost $147M in the first nine months of 2000 before the sock puppet went back to just being a sock.

Remember the grocery delivery service Webvan? In 2001 Webvan announced a $1 Billion investment in grocery warehouses. By the end of the year Webvan was out of business.

But, could today’s irrationally ex-Uber-ant, on-demand delivery services suffer the same fate? Can you even imagine a world without Uber, Lyft and the Choco-Taco? How would the Tik-Tok generation survive without restaurant delivery apps Postmates, Grubhub and Doordash? And, how would Millenials survive without Blue Apron and HelloFresh gourmet meal kit subscription services? Not to mention Airbnb and HomeAway where customers pay to stay overnight in a stranger’s home. Is this truly the end of champagne wishes and caviar dreams for an entire generation?

There’s a decent chance you’ve never heard of these apps. If so, that might be a good thing.

So, what’s changing in the on-demand, delivery biz? Turns out, a lot. See, many of these companies have been subsidizing operations with free-flowing investor capital. Uber, for example, burned through $20 billion of loose venture capital before filing an Initial Public Offering (IPO) to raise additional capital. According to BuzzFeed, during a period in 2015, Uber was burning $1 million a weekin driver and rider subsidies-just in San Francisco. That kind of burn rate is not sustainable. But, it’s the same economics that subsidized many $8 Uber trips. Trips that today cost a more accurate $20-$30.

On top of free-flowing capital, these companies gorged on cheap debt. Lending institutions loaned millions at very low interest rates to subsidize ongoing operations. That free-flowing, cheap money is coming to a screeching halt. A result of rising interest rates, inflation and a plethora of other negative economic forces.

There are other negative forces wreaking havoc in the on-demand delivery service industry. Take gasoline, for example, a key ingredient in the delivery biz. When Uber launched in San Francisco in 2009, gasoline was $2.35 per gallon. And, the economy was flush with cheap labor, as the Great Recession created a cash crunch for many workers. Unemployment peaked in October 2009 at 10%. It was the perfect time to create a gig economy business. A gig economy is a free market system in which organizations hire temporary, independent workers for short-term commitments.

Fast forward to 2022. In San Francisco, gas has reached an average of $6 a gallon, according to the U.S. Energy Information Administration. The US unemployment rate is 3.6%, and businesses are starved for labor.

Uber drivers average around $20 an hour. But, each driver must bear the expense of tolls, parking fees, car maintenance, gasoline and insurance. Not to mention the wear and tear on a personal vehicle and the occasional drunk throwing up in your backseat. That $20 an hour looked pretty good in 2009. Today, fast food restaurants like In-n-Out Burger pays an average of $18.06 an hour and up to $24 an hour for top performers. As a result, on-demand delivery services are starving for labor.

Not surprisingly, most on-demand, delivery services have never turned a profit. The poster child is Postmates. Postmates is one of the nation’s most popular food delivery services. Postmates has accumulated losses of nearly $1 billion since it was founded.

Yes, the Millennial lifestyle subsidy is coming to an abrupt end. Now we are about to see just how much consumers are really willing to pay for on-demand convenience. Stay tuned.

My writing is intended to be a conversation. That means you have to participate. C’mon, I know you have an opinion on these delivery services. Let’s hear it. Nobody will show up at your door. I’ll respond, even if we disagree with each other.

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