- Once upon a time, Americans could use certain apps to get cheaper prices and services.
- The so-called millennial lifestyle subsidy offered convenience, but its relative rewards have faded.
- As costs rise, some people are adjusting by using public transit more often and seeking hotel deals.
Sarah Manley, 31, was facing sticker shock.
Manley, an artist and musician in Baltimore, was a loyal Airbnb user before the pandemic. When she emerged from lockdown and looked on the platform for a short-term stay, she was shocked by how much prices had risen. Indeed, Airbnb's average daily rate rose by 36% from 2019 to the end of 2022.
Manley opted for a hotel. Short-term rentals aren't the only habit she's ditched. She isn't using ride-hailing services like Uber and Lyft anymore. She's found that parking at the airport for a few days is actually cheaper than the round-trip fare.
"If I was using rideshares and the delivery apps and everything the way I was, I would run out of money each month," she said.
Manley is one of many American adults adjusting to life after the so-called millennial lifestyle subsidy: a cadre of apps and services that launched in the 2000s and 2010s and earned the loyalty of a generation by offering convenience and low prices to things that may have been out of reach before. Think Uber, Blue Apron, WeWork, Sprig, and Flywheel. Subsidized by their venture-capital backers, the brands sought to attract as many customers as possible, hoping profits would follow.
But as inflation and higher interest rates have pushed prices up and scared away some investors, consumers who got used to subscriptions and luxury experiences for less are having to find alternatives. For some, like Manley, it means going back to the old-fashioned way of doing certain things: shopping around for hotel deals, taking public transit more, and working out at home with fitness classes on video.
"At first it was obviously an adjustment being like, wait, I'm trying to go to this event and normally I'd take a Lyft," Manley said. "You kind of had to recalibrate some stuff, but I have gone away from it, and I don't see myself going back to it anytime soon."
The millennial lifestyle subsidy hooked a generation on convenience and lower prices
For a while, cash-strapped younger Americans seemed as if they'd lucked into a good deal: They might have had dismal career prospects or no chance of homeownership, but at least they could take a fitness class for $5 or even for free.
The subsidized services felt like they were "for the people," Manley said. "That sounds very dramatic, but it was like, oh cool, we've come together to make these cheaper, better alternatives than the only option we've ever had."
Suddenly the luxuries that were out of reach for recession-battered Americans — especially those who lived in food deserts or struggled with inconsistent public transit — were a little more accessible. For reasonable prices, you could get food delivered to your front door, access to boutique fitness classes, or a private-car-like experience. Millennials who were just reaching early adulthood got hooked.
But the low entry prices for many of those services are rising. In 2022, Peloton raised its membership fee to $44 from $39 and rolled out additional subscriptions. Citing YipitData, Bloomberg reported that between 2019 and 2022, the average Uber price rose by 45% and Instacart service fees rose by 61%.
It's caused some people to question whether their apps and subscriptions were worth it — or if they should go back to doing things as their parents did.
Grant Plotkin, 26, is a Gen Zer who experienced the pre-2020 millennial subsidy as a young adult. He hopped to different ride-hailing services when they offered promotions to get off the ground. He opted for Airbnbs instead of hotels. He ordered meal kits.
But as prices have gone up, he's shaken up his routine: Rather than finding him in a car, you're much more likely to catch him on the ferry. Instead of going to a WeWork-style coworking space, he'll use his building's amenities. He's eating out less, and when he does need to take a car somewhere, he's comparing prices across platforms.
Plotkin estimated that if he were to use the same services he used before the pandemic, his costs would double.
"I remember Ubers used to just be a no-brainer, and it would be like $20 here, $15 there, super easy. And now I mean it's $40 or it's $50, and you got to question that," Plotkin said. "I mean, that can be more than your meal."
The end of the millennial subsidy could mean higher prices across the board
Rising wages have kept many Americans' finances in relatively good shape despite inflation, so the convenience of the apps is still strong. Airbnb this spring reported record first-quarter bookings, but with more hosts entering the short-term rental market, many say they're getting fewer stays. In a prime example of ending a subsidy, Netflix recently increased prices for some of its plans and cracked down on password sharing following a loss of subscribers. It worked to lure more individual sign-ups.
Brett House, a professor of professional practice in the economics division at Columbia Business School, said low prices were never meant to be a long-term gift to consumers — they were meant to function as disruptors.
But that the model isn't sustainable in a higher-interest-rate environment. When money was cheap to borrow and pour into a new company, investors could subsidize the costs of entry prices in hopes that infinite growth would lead to a captive audience. Now, though, with interest rates at a two-decade high, capital is more expensive.
Plus, as inflation squeezes people's budgets, they're looking for ways to change their habits. For some, that's cutting out meal kits and subscriptions. Even wealthy shoppers are turning to discount brands like Dollar General and Aldi.
The end of subsidies might also be exacerbating some of the inequities that they papered over: House said the hardest-hit Americans may be those in areas without reliable public transit or with few stores — meaning they can't go just walk elsewhere to find a better deal.
"That sort of economy always had a dark underbelly, and that's really, I think, what the legacy of this period is going to be," Bilal Baydoun, the director of policy and research at the Groundwork Collaborative, a left-leaning think tank, told BI. Those lower-than-normal prices were feeding a "monster," he said, "and that monster is the sort of monopolistic, Big Tech-enabled pricing schemes that we're seeing today."
One of the legacies of this era's apps could be dynamic pricing. In the same way that ride-hailing apps increase prices during busy times, algorithms have made it easier for companies of all kinds to offer varying prices based on market conditions or user information.
It also introduced more customers to the idea. You might scoff if a taxi driver said you needed to pay more for a ride in the rain but not blink an eye when an app says costs could rise because of the weather. The next iteration of the millennial subsidy might be gamifying surge pricing for groceries or a side of fries.
"It's making people miserable to not know what things cost. I mean, we live in an age where budgeting is really essential to get by amid a really long-term affordability crisis in this country," Baydoun said. That creates a "sense of chaos," Baydoun added, and a sense of "just being at the whims of corporate pricing consultants who are paid large sums to really just come up with more and better tricks."
All of that might lead to companies pursuing ever riskier tactics to bring in revenue, like surge pricing or drip pricing, where fees are slowly revealed throughout a transaction — something that could break customer loyalty and mean lower pay for workers.
In the meantime, Americans are trying to find new subsidies where they can. For Plotkin, that's taken the form of another increasingly popular offering: credit-card rewards. Companies like American Express have stepped in with offerings like subscription services and early access to events to attract new and younger customers. And younger workers are responding in kind, with tussles breaking out over who exactly gets to put their card down for brunch when everyone gets 5% cash back on dining.
"To maximize ROI — if you even would call it that — for going out and about in town, it's like, OK, I use my specific card that gets more points for rideshare versus dining versus apparel or retail," Plotkin said. "And I've tried to become more savvy. I feel like I have to stretch that dollar even further now in this economy."
Has the loss of the millennial subsidy affected your finances or lifestyle? Contact this reporter at [email protected].
