From The Future, Looking Back On Tomorrow: Why The Pre-2020 App-Contractor Bubble Finally Popped

“Bubble reflection”
Image Credit:
Isabelle Acatauassú Alves Almeida

Bubbles pop. That’s nearly all we’re guaranteed, whether rainbowy soap bubbles or bubbles of the economic type. Of course, blowing and popping soap bubbles is fun for all ages, while economic bubbles tend to almost universally cause pain for most.

The Dutch Tulip Mania (1633-1637) is probably the most well-known speculative bubble in recent history, probably used as a stark and interesting example of speculative bubbles by Economics 101 instructors at universities, worldwide. Why? The Dutch Tulip Mania was centered around colorful, beautiful tulips! Such imagery! (Students love it.)

Speculation in tulip bulbs by people of all classes of Dutch society swept Holland with fervor; by the end, there were some very wealthy “flippers”, and many more hopelessly impoverished speculators who “held too long”. (At least they had a beautiful garden?)

And, of course, there’s the Stock market Crash of 1929; this example of a bubble is probably best known among all the people of the world, surpassing even the Tulip Mania in notoriety. Speculation, again across all classes of society, took America by storm, as citizens borrowed to invest. (Always a) Bad Plan. We all know how that worked out in the end. Lesson learned: Never get caught “holding the bag”.

More recently, we experienced the “Dot.Com Bubble,” probably within the lifetime of most readers. As NASDAQ tech stocks soared in the 1990s, and Internet-based business took primeval form, many new ideas for web sites as there were developers emerged, it seems. It was undoubtedly a time of great innovation. However, ridiculous business valuation, coupled with negative earnings, caused the NAS to eventually roar downward from 5000 to 1000 in a matter of a few years. Go Pets.com, you can do it! Wait…where’d you go?

So that brings us to the projected ~2020 App-Contractor Bubble and Crash that, as of this writing, hasn’t happened yet. Why will this surely be a bubble that pops, sooner or later? Really, because it’s the same scenario repeating itself, all over again. Many app-based services rely heavily on contractors, and are extremely overvalued and are also under-performing pitifully.

While many apps created brand-new markets where none could have previously existed, others wedged into existing markets, such as the most popular of the new apps: the ride-share services, as well as a few others services that already existed in the “real world.” (The entire list is quite extensive, from Massage Therapists to babysitters, mechanics to housekeepers.)

Some taxi drivers committed suicide because they were underwater with their loans for their cab medallions, because they could no longer earn enough at their cab company, hit hard by the young generation’s love for marketing efforts by the big rideshares.

There was surely an existing market of black cars, taxis, and car services, that ride-sharing apps cut deeply into the profits of, effecting the lives of many drivers and their families. And while this has decimated the taxi industry, the drivers claim they are actually worse off working for the new app rideshares. No one is really happy. The contractors are grumbling. The investors are grumbling with weak (deceptive?) IPOs. But the passengers? They seem happy enough.

How long will this continue for? How long will investors be willing to pump billions of dollars yearly into an app, desperately trying to suck whatever life is left in those preexisting markets, right up into their own coffers? At some point, if these app companies continue to post losses and investor funding dries up, we can predict that at least some of these apps will go the way of the dodo.

And, while many, many smaller car service and taxi companies have since folded, at some point, new small businesses will start up, with a younger, more savvy generation, leading them in their fight against the billion-dollar bankrolled apps. This renewed competition will only cause issues for the apps, along with drivers striking and doing whatever they can, as un-unionizable contractors are able, to try to make changes such as better pay.

In the end, it’s even questionable whether entering into an existing market, where a serious number of healthy small businesses ALREADY compete, and pumping nearly unlimited funding into those markets to drive existing operators OUT of business, is legitimate and legal business practice in the United States.

Of course, the claim is that this is an “app”, it’s a “ride-share”, it’s NOT a car service or taxi. Isn’t that how these megaliths first got around state and municipal requirements, usually reserved for car services and taxi companies? As of now, that’s changed, and requirements are stricter, including in new York.

But really, we all know you’re going to use a taxi or a car service or an app to get you somewhere, if you’re not driving, carpooling, walking, or taking public transportation. In reality, taxis mainly serve patrons hailing them; car services are called via phone, for the most part. Could we really say that these apps operate in different markets, merely because an app is used rather than a phone or an extended arm hailing a cab?

The customers will go with only one choice, whether an app, taxi, or other car service. Of course, it’s the same market, with the same customers, and it’s only mental gymnastics that allow us to think these ride-sharing apps have “opened up a whole new market”. If I opt to take a ride-share, it’s the car service I’m not going to be calling.

Some pundits and social dreamers imagine that the future is “everyone relying on rideshares.”

Yeah…right. That is exactly the opposite of convenient. Maybe electric cars are coming; I won’t doubt that. In fact, I welcome more innovation. It’s the future. But self-driving cars? And autonomous rideshare for all? These utopian ideas reach far. Perhaps too far.

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However, if this is all the current bubbles are based on — merely dreams — we’d better start now, hastily preparing for a future that looks very different. Some of the apps we know and trust may be gone, while still others, yet unknown, may take their place.

Small businesses offering taxi and car service may re-surge and start being able to compete more effectively using different business models, including employee-owned cooperatives of drivers, as well as “local” apps of their own. In any case, it’s inevitable that “the sky’s the limit” just isn’t sound investing advice, and it seems the current App-Contractor Bubble is just another instance proving this.

And, car services and taxis have been “rideshares” for decades and decades. Anyone using car services in the outer boroughs of New York City, like Staten Island, know that when you called “Village” or “Staten Island” (car service companies of yesteryear) back in the day, your driver was sometimes going to have to pick up or drop off other passengers, if it was on the way. It’s no innovation, this newly-repackaged idea of rideshares.

And, drivers were dispatched calls based on their location. With rideshare apps, however, it’s “whomever gets there first”, in terms of a reply to the app. Does this waste gas? How could it not? Rideshares zooming around town, wasting gas, cannot be avoided under the present model.

So with Apps and contractors, are we really saving gas? Conserving natural resources? It seems that the old-fashioned, 2way radio dispatched car services win in this area also, besides the many other ways drivers claim car services and taxi companies were better employment choices. (Not to mention a cleaner ride for occupants,m according to a recent study, though hobbled by a very small sample size)

In conclusion, it seems that economic bubbles are an inevitability, due to human nature; we tend to get over-excited, and buy into over-hyped trends. Is there truly going to be an App-Contractor Bubble, as this author suggests may be the case?

It’s possible. Maybe even probable.

Checking out the metrics of the situation, the actual figures, and it seems that the template for an economic bubble may fit too nicely with our current reality, regarding App-based contractor companies and investors. In any event, markets will correct, as they always do, and it’s quite possible some will be thrown for a loop by this App-Contractor Bubble bronco, as sometimes happens with market corrections and runaway enthusiasm and “utopian dreams.” We’ll recover. We always do.

Maddi T.