Everything in the unit of economic benefits has been marked with price in the dark
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Editor’s note: With the collapse of WeWork and the massive cash outflow of Uber, the gold rush in the consumer technology sector may be coming to an end, and companies that are not profitable cannot allow investors to continue to bet. To survive, companies have to reduce subsidies. The author is Derek Thompson, the original title The Millennial Urban Lifestyle Is About to Get More Expensive.
Image source: Carlos Jasso / REUTERS
A few weeks ago, I met a friend in New York who suggested that we go to a Scottish bar in West Village to have something to eat. He booked a table through “Seated” – if the booking is successful, the app will give the user a rebate. We each ordered two cocktails and ordered some food. We got a reward of $30 for drinking whisky, and then I can redeem it at various retailers.
I never felt that giving me a gift was an offense to me, but so many rebates were a bit too generous. Whenever people walk into restaurants, Internet companies throw money at them. It doesn’t sound like a business, it’s more like a strategy to get out of money as quickly as possible, or a minimum basic income guarantee for New Yorkers who often go out to eat.
“Does its existence make sense? Is it reasonable?” I asked my friend.
“I don’t know if it makes sense, and I don’t know how long it can last.” My friend stopped the finger on the sliding screen and looked at the points partner above to ask me, “So you want to take your half of the points.” Used in Amazon or Starbucks?”
I don’t know if it makes sense or how long it lasts.
In this era of consumer technology, is there a better epitaph than this sentence?
Giving lifestyle sponsorship for millennials
After about a decade ago, a group of well-known start-ups promised to change the way we work, exercise, eat, shop, cook, commute and sleep. The influence of these companies is huge, people see them as a template for business, Silicon Valley is everywhereIt is a promotion of “Uber for X”.
But with more and more promises, their profits have not increased – I have already pointed out that the most amazing property of unicorn companies is their ability to combine high valuations with sustained negative returns. . You may use the products of the Unicorn Company every day: wake up on the Casper mattress, use Peloton to exercise before breakfast, call a Uber to work in your WeWork office, use DoorDash to order a lunch takeaway, hit Lyft came home from work and sent home with Postmates for dinner… You used seven unicorn companies on this day, and they lost nearly $14 billion this year. If you are still using Lime’s shared electric car to commute, find someone to help you walk the dog on Wag, use Blue Apron to get the fresh ingredients you ordered, then you have never made money with 3, or the valuation has fallen by 50%. The above companies have dealt with it.
These companies don’t openly use the “cold” money like Seated, but they are not much different from Sead in terms of giving users “benefits.” In order to maximize new and incremental customers, they provide a large amount of subsidies to consumers, at least strategically limiting prices. You can call it the “Lifestyle Grant for Millennials,” which is the money that startups and venture capitales use to develop everyday habits for young urban users. Every time you use Uber, WeWork or a dinner takeaway, the target consumers will get a lot of discounts.
For consumers, “giving a millennium lifestyle sponsorship” is a very good deal, a shift from capital to labor for the pursuit of long-term profit. This may also make Bernie Sanders and Milton Friedman happy.
But the sponsorship model will not last forever
WeWork’s disaster-like IPO process caused severe shocks in the industry. The theme of consumer technology has shifted from magical subsidies to profitability. Venture capital and founders of start-ups have renewed their old rumors: profit first.
And higher profits only mean one thing: urban life will become more expensive.
Uber, WeWork, and DoorDash are not yet profitable, which may shock many people. After all, they spend a significant portion of their monthly salary on car, shared office space or take-away fees.
Why are these companies not profitable? There is a simple explanation. For those who understand finance, the answer is related to the so-called “unit economic benefits.” Ordinary people can think about this question first: I was deceived by these companies, or am I being cheated to some extent? In many cases, the answer is the latter.
Let’s imagine that there is such a startup that specializes in home delivery of fresh ingredients and recipes.So that you can cook quickly and easily at home. Let’s say you subscribe to it and pay it $100 a month. After a month, you feel that the ingredients are great and the recipes are very sweet. You decide to renew for another month. The same is true for the third month. But in the fourth month, you think you have enough kitchen skills to roast chicken or squid yourself. You uninstalled the app.
Your total value for this company is $400 ($100 per month, 4 months). Since you don’t continue to use it, the catering company must find the next “you” to keep growing, so they must advertise on the podcast. Let’s continue to assume that, on average, if the company spends $50,000 per ad, it is expected to add 100 new users (or $500 for each additional user).
If a company spends millions of dollars on podcast ads, its number of users and receivables will continue to grow. Analysts will be surprised to say: The company’s products are too hot! But carefully, if you add a new user for $500, and a typical non-core user (like you) would only spend $400 to buy a product, then the company has no way to make a profit. This road will only lead to extinction.
The case I just said is actually not an assumption. Before the listing, catering company Blue Apron revealed that although each user spent less than $400 on the platform, the company’s cost per new paid user was about $460. In the long run, this company is like a power station. From the perspective of unit economics—that is, by observing the difference between user value and customer cost—Blue Apron is not so much a “company” as a welfare station: first, funding amateurs. “Chefs”, the company refused to raise the price of ingredients to maintain their balance of payments; second, funded podcast producers to advertise on podcasts and let them cook. It seems no surprise that the valuation after the listing has plummeted by more than 95%.
Blue Apron is a very extreme example, but it’s not just a problem. When investors found that WeWork lost more than $1 billion a year, the company’s valuation plummeted. Peloton’s growing sales and marketing costs have discouraged investors, and the company’s stock has plummeted. Lyft and Uber may have lost a total of $8 billion this year, in large part because the two companies have spent a lot of money trying to attract new customers through discounts, promotions and points. Everything in the unit of economic benefit has long been secretly marked with price, just as it did after the last Internet boom.
Over the years, corporate commitments have increased, while profits have not risen. The next step will be the convergence of promises and profits. The conquest of the world will be less, the price of sharing electric vehicles, Uber, Lyft, takeaways, etc. will rise, huge eliminationThe fee subsidy will be reduced. Lower restaurants, takeaways, taxis and shared offices… all of which will become more expensive.
The survival is a good business model.
Translator: Xitang