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A golden age of consumer convenience is passing

For viewers, one of the joys of Netflix was the ability to watch top-notch TV for hours on end without ever encountering an ad. Now the streaming giant is introducing a new subscription level that shows ads alongside its shows, albeit at a lower price. The turnaround in something that was anathema is the latest sign of the on-demand app industry’s economy being stretched. The instant gratification once doled out by streaming, ride-sharing, and delivery services may become not only less immediate, but also less satisfying.

In recent years, Netflix, Uber, Deliveroo and the like have spoiled customers. From original, binge-worthy (and ad-free) dramas at the click of a button, to speedy taxi shuttles and a buffet of international cuisines delivered right to your doorstep – all at minimal cost. At a time when real wage growth was stagnating, cheap apps made us all feel better.

A decade of cheap money also fueled investor growth in the on-demand economy, which subsidized below-cost content, rides and deliveries to drive demand. Investors counted that the strategy would eventually yield large market shares, well outweighing early losses.

With interest rates rising, investor cash and optimism are waning. Providing slick services at unbeatable prices is much more difficult. Prices have to go up, costs have to come down and new revenue streams have to be found to keep investors engaged. Hence the search for ad revenue from Netflix, Disney Plus and other streamers. Uber’s road to profit (after more than a decade of losses) has been paved in part by rides getting more expensive.

Higher living costs also make on-demand business more difficult. Consumer appetites are under pressure, putting subscriptions under pressure. The boost that the pandemic gave when people were locked up and barred from restaurants and movie theaters is over. Netflix amassed more than 36 million subscribers in 2020, but it’s harder to keep them and attract more. A cache of TV shows and quick takeaways seem more of a luxury, as inflation erodes real purchasing power, as evidenced by Deliveroo’s mounting losses in the first half of 2022.

The money thrown into the convenience economy has also led to an overcrowded market. Couch Potatoes can choose between Netflix, Amazon Prime, Disney Plus and others, and a plethora of ultra-fast delivery and takeout services; ride seekers can switch between Uber, Lyft and Bolt. Streamers are starting to trickle episodes, to prevent consumers from devouring entire series and then quickly canceling direct debits. Overall, competition is expected to improve quality across the industry, but it also means more user time wasted screening different apps and potentially multiple subscription bills.

Regulations are also introduced. A UK Supreme Court ruling last year means Uber’s drivers are now considered employees, with the added cost of minimum wage, pensions and holiday pay. Similar statements elsewhere increasing pressure on companies in the gig economy to increase wages and benefits for employees. Competition for drivers between ride-sharing apps also predicts higher wage and ultimately price pressures – not to mention longer wait times.

When the pressure on livelihoods finally eases, consumers may again be willing to pay higher prices and reopen closed subscriptions. Meanwhile, consolidation, casualties and bundling can still change the dynamics in the industry. Anyway, the multi-year summer of cheap and easy consumer convenience seems to be a thing of the past for now. It was good while it lasted.

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