As the Fed raises rates, and money becomes harder to obtain, the metaphorical tide is receding, and anyone swimming without pants is about to be caught. The editorial board of the Financial Times suggests that this will impact the on-demand economy the most. Streaming services, ride sharing, home food delivery, and businesses with similar models will be hardest hit. They write:
For viewers, one of the joys of Netflix has been the ability to gorge on hours of top-class TV without ever encountering an ad. Now, the streaming giant is introducing a new subscription tier that runs adverts alongside its shows — albeit at a lower price point. The U-turn on something that had been anathema is the latest sign that the economics of the on-demand app industry are becoming stretched. The instant gratification once dished out by streaming, ride-sharing and delivery services may become not only less instant, but also less gratifying.
In recent years, Netflix, Uber, Deliveroo and the like have spoiled customers. From original, binge-worthy (and ad-free) dramas at a click, to rapid taxi shuttles and a buffet of global cuisines delivered right to the doorstep — all at minimal expense. In a period in which real wage growth stagnated, low-cost apps made us all feel better off.
A decade of cheap cash also stoked an investor boom in the on-demand economy, which subsidised content, rides, and deliveries at below cost prices to drum up demand. Investors betted the strategy would eventually garner large market shares, far outweighing the early losses.
With interest rates rising, investor cash and optimism are dwindling. Providing slick services at unbeatable prices is much harder. Prices need to go up, costs need to fall, and new revenue streams need to be found to keep investors engaged. Hence the quest for advertising revenues by Netflix, Disney Plus and other streamers. Uber’s road to profit (after over a decade of losses) has in part been paved by rides becoming more expensive.
Read more here.