The era of 'millennial lifestyle subsidies' is over

If Millennials’ lifestyle subsidies are to come back, it could take years. Derek Thompson, staff writer at US magazine Atlantic observed last month that “for the foreseeable future, metro residents will have to live life the old fashioned way: by paying the real cost.”

David Rohrsheim lived his early years of pricing strategy as a “nerd” in San Francisco in 2010, then flooded with new apps created for the iPhone, before bringing Uber to Australia as the country’s first local boss.

Across the start-up space, the massive, free discounts that once lured people to new consumer goods are less common.Credit:iStock

“You are constantly a part of beta testing for the future,” Rohrsheim said by email. “Developers can reach critical mass in San Francisco quickly and know if their idea is a good one. Many don’t, but that’s half the fun.”

Back then, says Rohrsheim, about three-quarters of the world’s venture capitalists were based in the city’s Dunes Road, which has become a metonym for the industry. The money goes to companies like Uber.

“In 2012, I remember handing out a $20 Uber voucher myself at a Sydney bar,” says Rohrsheim. “That investment could accelerate the start-up business into the future.”

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Part of the logic of this expensive road to growth is that many businesses scale to become profitable. A delivery company may lose money on its rider wages but hopes to negotiate a better deal with the supplier as it gains more power in the market. If the staff could unload more items per shipment, then the profits from those sales would help cover their wages as well. Some companies like Uber cannot exist at all without a large number of customers and drivers. Without the scales, it would take too long for passengers to get a ride and for drivers to get the fare. With scale, service feels effortless.

Rohrsheim, who is now a startup investor after leaving Uber, said the approach only worked if the underlying business was sustainable.

“Sometimes you see businesses selling only $2 coins for $1 — they’re not going to magically become profitable when they grow,” says Rohrsheim.

Millennials, generally defined as those born between 1981 and 1996, are the big beneficiaries of this investor dollar income. Born too late for affordable housing and just in time for stagnating real wages, the generation can at least take advantage of the convenience of rebates.

But public markets and venture capitalists are not social workers. They need returns for their investors, who are among the nation’s largest pension funds. Uber, which has lost billions over the years, is also facing pressure to raise costs (and cut the company’s share) of its couriers and drivers who argue their salaries are too low as fuel prices soar and used cars become more expensive.

“Much has changed since Uber first launched in Australia, but we haven’t made any broad changes to the recommended fares since 2017,” a spokesperson said. “It’s clear from driver-partner feedback that we need to revisit this.”

“Early subsidies are easier when money is almost free, but become harder as interest rates go up.”

Economist Chris Richardson

Payment sheet viewed by Sydney Morning Herald and Era for one region, show the base price for the trip from $2 to $2.25, the rate per minute increased from 38 cents to 40 and the minimum fare increased from $7.50 to $8.50. Koala’s external press representative declined to comment. A spokeswoman for Neuron said it had only made one marginal increase to its standard fare since launching in 2019, which is equal to or below its competitors. It raised its monthly pass from $89 to $99 in February this year for some territories, and the spokesperson said it would continue to run the promotion.

Marley Spoon Australia chief executive Rolf Weber said the company was working with its suppliers to manage cost and supply chain challenges. “We raised our prices a bit in May and our customers are very understanding, because they see prices just going up and up in supermarkets,” Weber said.

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Richardson says startups launching discounted product offerings always have to raise prices. The changes needed have just been accelerated, he said.

Rohrsheim is more optimistic about the future of the start-up world. “There is more venture capital than ever before out there looking to support good ideas – especially in big markets like food and transport – so I don’t think winter will last too long.”

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