The week of November 23, 2014

The hidden cost of the on-demand economy

By Beejoli Shah

“Fuck, I wish the Mission would just gentrify faster,” a 20-something acquaintance recently said to me, complaining about the bar scene in San Francisco’s artsy Mission District. “I’m not trying to step over a homeless guy just to pay $14 for a drink, you know?”

I wanted to be shocked. After all, this guy had grown up in the Bay Area and attended college with me at University of California, Berkeley; the whimsical charm of San Francisco shouldn’t have been lost on him, even if he had grown up to become a “tech bro.”

We live in an economic climate where the newest, hottest businesses are born out of Silicon Valley, and all of them seem to cater to two major principles: “time is money” and “luxury is for everyone.” The most successful among them, like Uber, cater to both.

It was the personal-care app Unwind.me that made me start to feel like a giant slug.

The on-demand economy has commodified convenience. With the tap of a button, food from restaurants that don’t deliver can be at your door in 45 minutes (soon by drone); laundry is picked up, washed, and folded at your demand; parking tickets are fixed without ever having to get back in your car to contest them. All of life’s minor inconveniences are handled, with the added benefit of feeling pampered by a veritable cadre of personal valets.

With near every whim satisfied in just a few taps, is it any wonder that my dear tech bro was surprised the Mission hadn’t fully evolved into a yuppie paradise as quickly as he’d have liked? And more importantly, is this recent entitled economy of convenience—made by millennials, for millennials—the new status quo?

After a week ordering every on-demand service I could reasonably justify, I’m scared to find out.

The rise of the on-demand economy

The tech-enhanced convenience economy traces back to the first dot-com bubble. Dating back to 1999, sites like SeamlessWeb (now GrubHub Seamless) and Eat24 delivered food straight to doorsteps, succeeding where predecessors like Kozmo and Webvan failed. Both have continued to grow exponentially, in tandem with a handful of locally based startups that provide similar services. And others innovated on the idea: Startups like BlueApron aim to take the guesswork out of cooking by shipping refrigerated boxes filled with ingredients and recipes for a week’s worth of meals. Sprig and SpoonRocket now offer fully cooked healthy lunches and dinners—a health-conscious counterpoint to the heavy restaurant meals Seamless sends to your door. Feeding ourselves, the most basic human need of all, has been thoroughly disrupted.

But it’s not just about cutting out inconvenience. This on-demand economy is selling a lifestyle, and it’s a lifestyle that’s constantly innovating on itself. You can’t throw a rock without hitting an Uber or a Lyft car anymore. ReservationHop launched in San Francisco (to a chorus of detractors) to auction off OpenTable reservations to the highest bidders who forgot to make their own reservations. Apps like Fixed take care of my parking tickets. Laundry services like Washio and FlyCleaners compete to pick up, launder, and drop off my clothes, all so that I don’t have to walk two steps outside of my apartment and potentially make awkward small-talk with neighbors.

All of these services are constantly reminding us that our time is valuable, and more importantly, that we are deserving of luxury.

Feeding ourselves, the most basic human need of all, has been thoroughly disrupted.

Look no further than Uber’s motto: “Everyone’s private driver.” Even though Uber is largely used as an alternative to taxis these days (and most millennials I know opt for the cheaper UberX option), the behavioral psychology is still the same: You deserve this convenience. Even in New York, where cabs are still plentiful and slightly cheaper than an UberX, taking the pain point out of hailing a ride is worth the extra few dollars.

How did this on-demand economy gain so much traction—especially when they’re selling services that, to be quite frank, we should be able to handle on our own? The cynical will tell you that it’s because the days of domesticity are now gone. Home-economics classes are things of lore, and domesticity is on a massive decline.

As Ruth Graham wrote in an op-ed for the Boston Globe:

“Many young Americans now lack the domestic savvy that it takes to thrive. The basics of cooking, shopping, and ‘balancing a checkbook’—once seen as knowledge that any young woman, at least, should have—are now often not learned by young people of either gender, even as we’ve come to understand their major societal implications. And for adults, these skills have receded as well. In the family of 2013, more than 70 percent of children live with two busy working parents or a single parent, which means more takeout, cheap replacement goods instead of the ability to fix or mend, and fewer opportunities to learn essential home skills within the home itself.”

The even more cynical will tell you that it’s the product of an insane work-hard-play-harder culture, standard in the tech industry. Fewer hours spent grocery shopping, folding laundry, and calling restaurants for Valentine’s Day dinner reservations means more hours spent coding, disrupting, and ultimately… changing the world.

The convenience factor

Where did the need for startups that focused on a user’s convenience come from? In a climate that was previously focused on disrupting big industries in world-changing ways—say, helping researchers figure out how manually code entire genetic sequences, rather than auctioning off parking spots to the highest bidder—these startups seems out of place and narcissistic, even for Silicon Valley.

According to Button CEO Mike Jaconi, the transition was spurred by entrepreneurs who saw how well enterprise-focused startups worked and applied the same model to slower-innovating consumer industries. “The fast-moving technology companies competing in this arena have developed new models that are transforming industries which have historically been slow to innovate. The ground transportation, grocery, and restaurant industries are prime examples of hyper-growth categories in the on-demand world—growth that is in a large part a result of the application of new technology on top of existing infrastructure.”

While delivery services like Kozmo and Webvan were wiped out in the first dot-com bubble crash, they paved the way for the e-commerce startups of today. Products are significantly more cost-effective now, which lowers the barrier to entry for a consumer on the fence about spending a few extra dollars on something they should be able to do themselves.

The mass adoption of smartphones has been the real game-changer. Smartphones made onboarding new clients far easier, to the point where it’s second nature from the consumer’s perspective. Nowadays, companies that don’t have easy-to-use iPhone and Android apps—no matter how useful their website may be—usually find themselves quickly falling behind.

Is this recent entitled economy of convenience—made by millennials, for millennials—the new status quo?

Freelancers are also more readily available than ever before. They make up 15 percent of the current workforce and are expected to make up 20 percent by 2020. That means there are more people willing to sell their services via sites like errands app TaskRabbit, or deliver lunch for meal service Sprig, or loan their cars out to make money via Uber and Lyft.

It’s easy to look at all of these conveniences as entitlement, and in a large way, they are. But just as important as luxury is is customer service. The threat of on-demand ratings tends to breed nicer workers, which in turn pulls better customer interactions: The entire system wins.

Uber, currently embroiled in controversy, used to be known for its excellent customer service: Anything less than a three-star rating for a driver would trigger an email from an Uber community manager asking how the service and the driver could do better. Complaints usually resulted in Uber credits for the aggrieved passenger.

All of this has led to unprecedented attention from venture-capital firms. As Jaconi theorizes, investors have firmly bought into on-demand startups—an industry once thought extremely volatile, due to a multitude of issues surrounding both scalability and consumer preference. “The institutional investor community’s belief in the on-demand economy is unequivocal,” Jaconi wrote. “[O]ver $4.8 billion in capital has been invested in on-demand companies, with $2.2 billion invested in the last 12 months alone. The transportation industry alone has amassed over $2.1 billion in financing, including Uber’s most recent $1.2 billion financing round at a $18.2 billion valuation.”

Roadblocks and setbacks

On-demand startups seem to be succeeding in spades, with headline-grabbing high valuations, but it’s come with massive roadblocks and even splashier failures. For one, it’s an incredibly difficult industry to scale. When offering goods and services in industries that already operate on razor-thin profit margins—especially at prices that are relatively close to what a consumer would pay already—making a buck isn’t easy. As Kozmo learned when it allowed customers to order anything they wanted to their doors (sans delivery fee) back in 1999, operating at a loss isn’t really operating. Kozmo quickly shuttered, and it became the unwitting mascot for the dot-com bust.

Scalability is an issue even when companies are ostensibly successful. Personal-styling startup StitchFix has months-long wait times for customers to receive their next box of handpicked fashions, and it has recently hired a group of data scientists to figure out how to automate its processes while maintaining its core ethos of affordable personal styling. By taking the personal out of it, what’s left of the business?

Likewise, e-retailers ModCloth and Gilt Groupe both faced layoffs this fall, despite having high valuations and aspirations of IPOs. Couture-rental startup Rent the Runway, which aims to be “the Amazon of rentals,” was recently rumored to be valued at above $600 million, despite the fact that many users complain on social media about dresses arriving late, in poor condition, or not at all. And for companies that rely heavily on buzz, those sorts of scalability issues can be disastrous to a company’s long-term growth, no matter what their valuation says. (As Rent the Runway’s Head of Marketing A.J. Nicholas put it, “If we mess up, it’s not just the customer who hates us. Her friends hate us, her sisters hate us, her mom hates us.”

But perhaps the biggest issues facing consumer tech startups are harder to quantify in earnings reports: consumer whims and bad PR. For on-demand experiences, social media is a large quantifier of how well companies will do. Warby Parker has become the bastion of cool, hipster eyewear at affordable prices, but where it succeeded, identical startups such as Classic Specs and Lookmatic are failing, for no reason other than people just liked Warby Parker better. Consumer behavior is volatile and unpredictable, and even the startups that are successful may quickly fall out of trend or into a PR debacle.

Uber is currently facing unprecedented blowback. Despite cornering the market on the ride-sharing economy, the company pissed off every journalist in the country after BuzzFeed reported comments from Senior Vice President of Business Emil Michael about digging up opposition research and personal details on PandoDaily journalist Sarah Lacy. Press reaction was equally vitriolic towards Uber when news broke that a driver attacked a passenger earlier this fall.

For on-demand experiences, social media is a large quantifier of how well companies will do.

It’s all a dicey house of cards—one that requires a magical mix of scalability, success, and staying one step ahead of trends.

So where does that leave us? On-demand apps cannibalizing each other at a rapid rate, and with each passing day a new startup can deliver something I need to my door: a sandwich, an iPod, a boyfriend. Are we destined to become a nation of slugs, literal iterations of the cartoon humans in Wall-E, tapping our way into comatose privilege? Maybe not just yet.

As J.R. Hennessy wrote for the Guardian, we haven’t completely shifted over to an automaton society. While discussing the attack on Google Glass wearer Sarah Slocum, Hennessy argued that there are many who think the intrusions of tech masquerading as luxury have gone too far. “A simple fact remains: There is something intrinsically repellant about a world in which our food, jobs, and personal relationships are replaced by digital proxies in the name of ultra-efficient disruption. The geeks, with their ready willingness to abandon social norms, are pulling us toward a utopia nobody wants.”

Utopia is probably the best way to describe the world the on-demand economy envisions: frictionless transactions and user experiences, livable wages for freelance providers, excellent customer service on both sides of the transactions, all revolutionized by just how easily the Internet makes it to connect. As a business model, the mythical utopia is selling right now, largely thanks to the Internet. As Twitter cofounder Ev Williams once  said, “The Internet makes human desires more easily attainable. In other words, it offers convenience. Convenience on the Internet is basically achieved by two things: speed, and cognitive ease. If you study what the really big things on the Internet are, you realize they are masters at making things fast and not making people think.”

But just as this economy of convenience has grown exponentially in the last year, it’s still nowhere near the status quo. Daily-deal flash-sale sites like Groupon and LivingSocial were supposed to revolutionize e-commerce and brick-and-mortar retail when they first entered the scene back in 2009. By 2013, they had all but failed.

Tapping to my heart’s content

Back in the Mission District, I felt the need to experience the on-demand economy first-hand, costs be damned. I started out fairly innocuously—ordering an UberX to take me to a hair appointment I could’ve just as easily walked to.

Knowing how hard it is to get a cab on a residential street in the city on a weekday afternoon, coupled with Uber’s California fares that make it cheaper than taxis, I have to say, I felt little to no guilt as I took my underpriced chauffeured ride to a salon. (In my defense, I was already running 15 minutes late.)

When the guilt did start to kick in? When I used Postmates, a delivery app, to order a stranger to pick up KFC for me from an outpost in the Marina—just because I didn’t want others to know I chose that over the panoply of tastier non-chain dinner options. It’s probably worth noting that my meal itself cost just under $10. I paid almost double for the “convenience” of having my fried chicken walked over to me.

Throughout the rest of the week, I doubled down on my on-demand efforts. I used Sprig, a healthy meal-delivery service, to deliver a plated, fresh-cooked meal of smoked salmon to the apartment where I was crashing, despite having stocked up my friend’s place with groceries and healthy handwritten recipes of my own as a thank-you earlier that morning. It’s not that I didn’t have time to cook myself a lunch; I just found it far more enjoyable to play FIFA alone while commentating on my own game in a British accent.

I attempted to use ReservationHop to bid on a last-minute reservation to a fancy restaurant, but I couldn’t make it through without the site repeatedly crashing. (The startup has since switched gears amid rapid criticism for auctioning off free reservations; it’s now attempting to be a tool for wait staff to schedule work shifts.) I ultimately ended up eating at a restaurant I found the old-fashioned way: by asking friends for recommendations. I even called ahead to speak with a host.

It’s all a dicey house of cards—one that requires a magical mix of scalability, success, and staying one step ahead of trends.

It was the personal-care app Unwind.me that made me start to feel like a giant slug. I used it to order a massage for myself as a birthday gift, and while the masseuse was wonderfully professional, the whole saga was a little less than relaxing, given that I was oiled up under a sheet on a portable table in a friend’s apartment and my eyesight was fixed directly on a dust bunny the size of an actual rabbit that I forgot to sweep out.

When I got back to New York after that weekend, feeling more entitled than I have in a long time, my first order of business was to fire up FlyCleaners and get my laundry picked up. Pressed for time—I was headed right back on another plane the next day for a wedding in Kentucky—I hit Seamless to order as much Chinese food as one person could carry from the local Szechuan joint half a block away from me.

All that tapping on my iPhone made me realize that I desperately needed a manicure before showing up to someone’s wedding, and on-demand beauty app PRIV had no problem producing a manicurist to show up on my doorstep, even though it was past 10pm. The convenience PRIV offers for working professionals is impressive, sure, but there’s an obvious trade-off. When the manicurist couldn’t dissolve my old gel manicure off my nails, I found myself longing for the power tools that would have been available inside a brick-and-mortar salon, rather than what she was able to carry in a fishing-tackle box. The entire process with PRIV ended up taking over two hours—something else that doesn’t generally happen in the high-volume pace of a traditional nail salon—and it was well past midnight before I was even dry.

I have to admit: My manicure did look excellent, and I didn’t have to miss a minute of work to get it done. But was it really a necessity, or just another piece of evidence of my own failure to plan ahead, coddled by an economy of convenience?

That’s really the problem with the on-demand economy: It’s not its existence that’s the issue—it’s what we use it for. I grew up in a family where errands were planned ahead by a day or two at the least. It was a good model for success. It made me plan ahead for schoolwork and learn to prioritize my time when I had multiple commitments, and it taught me self-reliance. (There are only so many times your father can utter, “You seem to have mistaken me for your maid,” before you learn to pick up after yourself regularly.)

Entitled tech bros pushing for gentrification may have become the new face of Silicon Valley, and their detractors wouldn’t be completely wrong, but there’s far more nuance to the economy than that. My freshly cooked meal from Sprig may have made me feel more indulgent than I cared to be, but the consultant friend I was staying with had a different take: For the three days a week he’s home, on average, it would cost him more in raw ingredients (and spoiled food) to cook for himself than it would be to have a healthy meal delivered through the app.

On-demand apps may give us the tools to live an easier life, but it’s a slippery slope between convenience and over-indulgence. How we traverse the road between those two poles? That depends on the user, not on Silicon Valley.

Illustration by Max Fleishman