Analysis: The Golden Age of Consumer Convenience Is Ending

For viewers, one of the joys of Netflix was being able to devour hours of first-class TV without encountering an ad. Now, the streaming giant is introducing a new subscription tier that runs ads alongside its shows — for a lower price. The turnaround in something that was heresy is the latest sign that the on-demand app industry economy is getting tense. Instant gratification, once distributed across streaming, shipping, and in-app delivery services, can become not only less instant, but less rewarding.

In recent years, Netflix, Uber, Deliveroo and the like have spoiled their customers too much: from original, compelling, ad-free dramas with a simple click to quick taxi rides and a buffet of global cuisines delivered right to the door — all for a minimal cost. At a time when real wage growth has stalled, low-cost apps have made us all feel better.

A decade of cheap money also fueled a surge in investors in the on-demand economy, which subsidized content, travel and deliveries at below-cost prices to boost demand. Investors gambled that the strategy would eventually capture large market shares, far outweighing initial losses.

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

Higher living costs also make on-demand business more difficult. Consumer appetite is under pressure, which puts pressure on subscriptions. The momentum provided by the pandemic, when people were locked away and prevented from entering restaurants and movie theaters, has passed. Netflix amassed more than 36 million subscribers in 2020, but keeping them and attracting others is harder. A trove of TV shows and fast food deliveries seem more like a luxury as inflation erodes real purchasing power, as reflected by Deliveroo’s mounting losses in the first half of 2022.

The money thrown into the convenience economy has also created a crowded market. Consumers can choose from Netflix, Amazon Prime, Disney Plus and more, and a host of ultra-fast delivery and pickup services; those looking for individual transport can switch between Uber, Lyft and Bolt.

Streamers are starting to stream episodes by dropper, to prevent consumers from devouring entire series and quickly canceling automatic debits. In general, competition is expected to increase quality across the industry, but it also means more user time wasted on screening multiple apps and potentially multiple subscription accounts.

Regulation is also interfering. A UK Supreme Court ruling last year made Uber drivers now considered contract workers, with the added costs of minimum wage, retirement and paid holidays. Similar decisions elsewhere are increasing pressure on companies in the “gig” economy to raise wages and benefits for self-employed workers. Competition for drivers among ride-hailing apps also portends higher wages and, ultimately, pricing pressures — not to mention longer wait times.

When cost-of-living pressures finally ease, consumers may once again be willing to pay higher prices and resume canceled subscriptions. Meanwhile, consolidation, write-offs and aggregation could still change the dynamics of the industry. Either way, the extended time of cheap and easy consumer convenience seems like a thing of the past. It was good while it lasted.

Translated by Luiz Roberto M. Gonçalves