Farewell to the servant economy

First there were Uber drivers who would come to your door at the push of a button. Now there are people who will bring you a packet of biscuits and some ibuprofen.

It is easy to see the appeal of the new glut of ultrafast delivery apps, which promise to bring groceries to customers in as little as 10 minutes. One investor in the sector was won over after ordering some pistachios and a can of coke that arrived in seven minutes.

To have people at your beck and call is not a new idea. In countries like Britain, it used to be commonplace for affluent households to have servants. Mrs Beeton’s Book of Household Management, published in 1907, said a household with an income of £1,000 a year should keep two or three servants, while even one on £200 a year should have a “young girl for rough work”. In some highly unequal countries such as India, wealthy households still have servants.

“On-demand” apps have enabled a mass-market version of the luxury of having people at your disposal to do things for you — albeit an atomised collection of people you don’t know and probably won’t see again.

Gig companies have sometimes played explicitly on this theme. One of Uber’s early slogans was “everyone’s private driver”. Getir, one of the ultrafast delivery apps, says it is “democratizing the right to laziness”.

For some critics, the growth of this new “servant economy” is a symptom of resurgent economic inequality and an underclass without better options. But there is another factor that has powered its rise: investors have been subsidizing consumers by funding companies that often charge less for these services than it costs to provide them.

Now that model is in jeopardy. The big problem is that the money is drying up. A decade of cheap money has given way to high inflation, gloomy growth forecasts and higher interest rates. Investors are beginning to get nervous about piling money into lossmaking companies. Shares in listed companies such as Uber, Lyft and Deliveroo have dropped sharply.

Many of the ultrafast delivery apps are also cutting jobs in an attempt to show investors they are serious about profitability. “Channelling Jerry Maguire, we need to show them the money,” Uber’s chief Dara Khosrowshahi executive explained to staff in a recent memo.

But making money is likely to mean paying workers less or charging customers more. This is a bad time to try either. Unemployment is low and job vacancies are high in many countries from the US and UK to Europe and Australia. Workers have more options than before. In addition, the high price of petrol makes driving around all day particularly expensive.

On top of that, courts, regulators and lawmakers are becoming stricter about the need for employment rights and protections for gig workers.

The UK’s Supreme Court ruled last year that Uber actually employs its drivers, which means it owes them the minimum wage, holiday pay and pension contributions. The EU has also set out plans to give employment rights to many gig workers currently treated as self-employed. A number of the new ultrafast delivery apps, including Getir and Gorilla, already employing their workers.

Charging higher prices to customers will be tricky, too. Unemployment might be low but high inflation is eating into people’s pay packets. In the UK, the Bank of England has predicted the worst squeeze on disposable incomes for at least 30 years.

There are already signs that people are cutting back on discretionary spending — and nothing is more discretionary than paying someone to bring a packet of biscuits to your house.

Companies like to talk about the vast size of their TAMs, or “total addressable markets”. In its initial public offering document, Uber said its TAM was “all passenger vehicle miles and all public transportation miles in all countries globally”.

Customers clearly value the slick technology by gig companies such as Uber. But how much demand will remain for such services once their prices rise?

It remains to be seen how many of these companies will survive the next few years and in what form. But the golden era for consumers of on-demand services is surely coming to an end.

In the decade after the 2008 financial crisis when wage growth was fairly stagnant for many, perhaps these apps gave us a sense we were wealthier than we really were, albeit with some hidden long-term costs. Laziness might have been democratised — but not for long.

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