Is the Sharing Economy a SHAM? - YouTube

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- If you're too young to remember the launch

of ride sharing apps like Uber and Lyft,

let me tell you, it was magical.

With just a tap of your phone,

a driver would show up in minutes to take you across town

for a fraction of what a yellow cab would charge.

Somehow, those wizards of Silicon Valley

figured out how to revolutionize the taxi industry.

And we all reaped the benefits

of low prices and immediate service.

- Things have changed in the sharing economy since then.

The average price of a ride share trip

has gone up around 40% in just the last year.

Airbnb rentals are about 35% more expensive.

Many of these companies point to a pandemic related

surge in demand and drop in labor supply,

but even food delivery apps like DoordDash,

which posted strong revenues throughout the pandemic

are dramatically raising their prices as well.

Many experts say that what's driving

this industry-wide price hike has less to do

with the pandemic and more with the fact

that many of these companies are finally trying

to become profitable.

- Wait, you mean more profitable?

- Nope, I mean profitable, period.

Despite being once valued at over $80 billion,

Uber has never turned a profit.

Far from it in fact.

- In 2020, the company lost $6.77 billion.

And for you blame that on COVID,

keep in mind that's actually an improvement over 2019

when they lost a whopping 8.51 billion.

Since its launch in 2009,

Uber has burned through roughly $20 billion

of investor capital.

And while they are perhaps the most extreme example,

they're hardly alone.

- Lyft,, DoorDash Grubhub, Spotify, Snapchat,

these are just a few of the many billion dollar

tech companies, what insiders call unicorns

that have never made a profit.

Even Airbnb, which was at one time,

the rare unicorn that made money has started posting losses.

And this was before the pandemic.

Despite becoming a ubiquitous part of our economic

and cultural landscape,

very few of these companies have figured out

how to actually make money doing what they do.

- And yet, investors continue to pour money into them.

In fact, money losing companies that went public in 2018

actually did better on the stock market

than ones that made money.

- It doesn't make any sense.

Isn't making profits the whole point of business?

- Well, it's not unusual for a startup

to operate at a loss for some period of time.

After all, you have to build infrastructure,

so R&D and hire employees before you can start earning.

What makes the tech sector unusual is the staggering

amount of loss investors are willing to tolerate.

- Amazon has a lot to do with that.

Despite years of losing money,

and years more of barely breaking even,

the company was valued higher than firms

with far bigger profits.

It's all about market dominance.

The idea is to spend gobs of money to expand aggressively

without worrying about profitability.

So that one day,

you'll be the biggest player in the industry.

Insiders call this blitzscaling,

and it's pretty popular on Wall Street these days.

- But 10 years and billions of dollars later,

most of these tech companies haven't made

any tangible progress towards profitability,

and it's not clear how much longer

investors' patients will last.

Think about it.

Food delivery apps like DoorDash, Grubhub

literally had a captive customer base

stuck in their homes throughout the pandemic

and still can't figure out how to make that

a profitable year.

- Some economists think that the real problem

is that many of these companies

never had a viable business plan to begin with.

Transportation economist, Hubert Horan says

that far from revolutionizing the future of transportation,

Uber has not solved any of the industry's

longstanding structural problems.

And that it has higher costs than every traditional operator

in every category other than fuel.

They figured out how to shift costs

like making drivers pay for their own vehicles,

but that's not really any efficiency.

Having a million individuals buy and maintain

their own cars is less efficient, Hubert argues,

than buying and servicing a fleet in bulk.

The company will eventually have to make up the difference

in the form of higher wages if they want to attract drivers.

- So then were they ever able

to offer such low prices?

Because their investors were essentially subsidizing them.

New York Times technology reporter, Kevin Bruise

compares the industry's pricing to a store

that sells $1 bills for 75 cents.

Sure, word of mouth will be fantastic.

But if you ever wanna make money,

you'll have to raise your prices to say 125.

And if you think your customers

will stick around for that, good luck.

- This is not to say that there aren't some tech firms

that are genuinely innovating

or that Uber might not someday figure out

how to make taxis more efficient.

But what's clear is that many players in the sharing economy

only got where they are through artificially low prices.

There's a mystical aura around tech

that makes it seem plausible

that a ride from the airport could only cost $5.

But in reality, the only innovation was a willingness

to lose money on every transaction.

Even Amazon isn't really performing miracles.

The majority of their relatively small profit margin

comes from their web hosting service, not the retail sector.

- So what?

You might think, if a bunch of rich investors

wanna subsidize my convenient lifestyle.

I admit we certainly partook in what journalist,

Kara Swisher called assisted living for millennials.

Her words, not mine.

- However, while very few of these tech brands

have managed to achieve the dominance

of say Facebook or Amazon,

they have acquired enough market power

to put some serious pressure

on traditional small businesses.

Restaurants that felt compelled to play ball

with DoorDash and Grubhub are now being squeezed

by commissions as high as 30%.

And the taxi industry, which for years

was carefully regulated to ensure profitability

and broad socioeconomic access

has been decimated by Uber's low prices,

which no profitable business could ever hope to match.

Chillingly, a recent internal document from Uber

identified public transportation as their next competitor.

- Today, as these companies start to tighten their belts,

prices are going up and maybe that's a good thing.

Maybe a ride from the airport should never have cost $5

in the first place.

As Kevin Roose, put it,

"Getting someone to clean your house,

do your laundry or deliver your dinner should be a luxury

if there's no exploitation involved."

As it strives to narrow its losses,

Uber has been steadily lowering its labor costs,

down to below minimum wage according to some studies.

And now surprise, surprise,

they're having trouble finding enough drivers.

Perhaps their self-driving division could pick up the slack

except they sold that off in late 2020

for a gain of 1.6 billion.

And it still wasn't enough to offset

their operating losses that quarter.

- Now, we're not saying you should dump your Uber stock

if you happen to have it,

all this may sound bad,

but Wall Street doesn't seem to be overly bothered by it.

Maybe Uber will someday become the Amazon

of transportation that they hope to be.

But even if they don't,

we should be weary about what these companies

are trying to accomplish

because the end game of blitzscaling

sounds less like modern innovation

and more like old fashioned monopoly.

And the only point of having a monopoly

is to be able to squeeze your workers and customers.

- Ideally, the market should reward companies

that truly innovate and make industries more efficient

and productive, and some are genuinely doing that.

- But we shouldn't let the mystique of tech distract us

from the fact that some of the biggest players

have just been buying their way into the game.

And that's our two cents. - And that's our two cents

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- To see the real world effect these companies

can have on their workers,

check out this episode of Future of Work,

a six part docu-series we hosted for the PBS voices channel.