When ride-hailing services like Uber and Lyft launched, they promised to transform how people move in big cities. These companies were seen as the future of urban transportation and true to that, they quickly established a foothold in all major cities globally, displacing traditional cabs in the process.
The appeal for Uber and Lyft from a consumer's point of view was easy. First, the ride offered was cheap. Secondly, the appeal of technology was huge. The fact that you could call in a cab using your phone doesn’t sound that sophisticated in this modern tech age. But it was way better than standing in front of your building and signaling a yellow cab to stop for you. However, what we didn’t know at the time is that these amazing fares from Uber and Lyft were not based on any real economics.
These companies endured years of losses just to give us these amazing cheap rides in our big cities. This was partly because the companies were heavily subsidized by loaded Silicon Valley investors and venture capitalists. To them, the primary goal for Uber, Lyft, and other innovative transport companies was not to make a profit. It was to pump in as much money as possible to support rapid growth and ensure these companies take over the entire cab market.
This period of massive subsidy, where Uber fares remained low, came to be known as the Millennial Lifestyle Subsidy. It simply allowed the city folk, especially those of us aged between 20 and 30, to enjoy cheaper rides, something that finally and perhaps inevitably led us to embrace Uber and the likes. But this period of subsidy is about to end. Now that these companies have achieved their massive market penetration, they are turning to profits.
And this is not just about Uber and Lyft. Many innovative Silicon Valley tech startups have taken this approach. Even Airbnb was offering people massive discounts to use its service. You could get high-class accommodation using the service for $20, a price that you would never even dream of paying in a traditional hotel.
The Millennial Lifestyle Subsidy made all this possible and it was good while it lasted. But from now on, this indulgence is ending. Just recently, some tweets started popping up of users complaining that Uber is charging relatively higher fares than we were used to. Netflix, arguably the only thing that got us through the pandemic, has been revising its rate upwards. Airbnb has also followed suit. The average price of an Airbnb was up by 35% during the first quarter of 2021.
This trend will not stop here. In fact, expect these prices to keep going up and up. In the end, the truth of this millennial lifestyle will start showing up in bills and we will surely feel the pinch. These startups from Silicon Valley are now answering to shareholders. As you know, shareholders typically want a return on their investment and nothing less.
