Farewell to the service economy for Uber and Deliveroo

Farewell to the service economy for Uber and Deliveroo

First, it was Uber drivers who came to your door with the push of a button. Now there are people who will give you a packet of biscuits and some ibuprofen.

It’s easy to see the appeal of the new array of ultra-fast delivery apps, which promise to deliver groceries to customers in as little as 10 minutes. An investor in the sector won over after ordering some pistachios and a can of cola that arrived in seven minutes.

Having people on hand is not a new idea. In countries like Britain, it was common for affluent households to have servants. Mrs Beeton’s Book of Household Management, published in 1907, said that a household with an income of £ 1,000 a year should have two or three servants, while even one of £ 200 a year should have a “young girl for hard work”. In some very unequal countries like India, rich households still have servants.

On-demand apps have enabled a mass-market version of the luxury of having people at your disposal to do things for you – albeit a finely divided collection of people you do not know and probably will not see again.

Gambling companies have sometimes played explicitly on this theme. One of Uber’s early slogans was “everyone’s private driver”. Getir, one of the apps for ultra-fast deliveries, says that it “democratizes the right to laziness”.

For some critics, the growth of this new “service economy” is a symptom of resurgent economic inequality and an underclass with no better alternative. But there is another factor that has driven its rise: investors have subsidized consumers by financing companies that often charge less for these services than it costs to provide them.

Now that model is in danger. The big problem is that the money is drying up. A decade of cheap money has given way to high inflation, gloomy growth forecasts and higher interest rates. Investors are starting to get nervous about investing in loss-making companies. Shares in listed companies such as Uber, Lyft and Deliveroo have fallen sharply.

Many of the apps for ultra-fast deliveries also cut jobs in an attempt to show investors that they are serious about profitability. “When we channel Jerry Maguire, we have to show them the money,” Uber CEO Dara Khosrowshahi told staff in a recent memo.

Loading more

But making money will probably mean paying less for workers or charging customers more. This is a bad time to try either. Unemployment is low and job vacancies are high in many countries from the United States to Europe and Australia. Workers have more options than before. In addition, the high price of petrol makes it extra expensive to drive around all day.

In addition, courts, regulators and legislators are becoming stricter in terms of the need for employment rights and protection for gig workers.

The UK’s Supreme Court ruled last year that Uber actually employs its drivers, which means they owe them minimum wages, holiday pay and pension contributions. The EU has also put forward plans to grant employment rights to many gig workers who are currently self-employed. A number of the new apps for ultra-fast deliveries, including Getir and Gorilla, are already hiring their employees.

Charging higher prices to customers will also be tricky. Unemployment may be low, but high inflation eats away at people’s wage packages. In the UK, the Bank of England has predicted the worst pressure on disposable income in at least 30 years.

There are already signs that people are cutting back on discretionary spending – and nothing is more discretionary than paying someone to bring a packet of biscuits home to you.

Companies like to talk about the huge size of their TAM, or “totally addressable markets”. In its initial public offering, Uber said its TAM was “all passenger vehicle miles and all public transportation miles in all countries globally”.

Customers clearly appreciate the smart technology used by gaming companies like Uber. But how much demand will there be for such services when prices rise?

It remains to be seen how many of these companies will survive the next few years and in what form. But the golden age for consumers of on-demand services is surely coming to an end.

In the decade after the 2008 financial crisis, when wage growth was rather stagnant for many, perhaps these apps gave us a sense that we were richer than we really were, albeit with some hidden long-term costs. Laziness might have been democratized, but not for long. – Copyright The Financial Times Limited 2022

#Farewell #service #economy #Uber #Deliveroo

Leave a Comment

Your email address will not be published.