It’s time for tech firms to turn a profit – and that’s where it gets tricky

Cazoo, the online car seller, has deliberately discounted the cost of vehicles on its website, undercutting used car garages in an attempt to build buzz.

One monument to this tech-sponsored lifestyle is the VC Fund My Life website. Created by two enterprising Silicon Valley developers to share referral codes, their owners have earned tens of thousands of dollars in credit.

Those who saw this and thought it could not last are now being proved right. Rock-bottom interest rates meant investors were willing to open their wallets in anticipation of returns that would not arrive for several years. Soaring rates, by contrast, mean profits today are what matters.

As a result, venture capital funding for heavily loss-making start-ups is collapsing. Tech companies are cutting jobs or being forced to accept dramatically lower valuations as they try to keep enough money in the bank to stay afloat.

Those that are able to raise cash are being forced to prove that their underlying businesses can be profitable. That means cutting discounts and raising prices, effectively wiping out the handouts that have flowed from investor to consumer.

For delivery and transport apps, this comes at the worst possible time: record petroleum prices are raising costs, and wage inflation means gig economy workers are demanding better pay. In Uber’s case, regulation is adding taxes and employment costs. In Europe and America, apps are being squeezed by restrictions on the gig economy and caps on the fees takeaway apps can charge restaurants.

On-demand apps are now facing four problems at once: rising costs, less consumer income, regulation and the need to show profitability. Any one of these on its own would be a significant challenge. The combination could be fatal. No wonder Uber, Deliveroo and Lyft have lost more than half their value this year, far worse than the Nasdaq average.

For much of their life, the question of whether these businesses are tech companies or merely older business models in fancier packaging has been left unanswered. While they have claimed they are making industries more efficient and improving consumer experiences, critics have complained they simply exploit regulatory loopholes to undercut incumbents.

As they are forced to show signs of profits, we are about to find out which is true. What seems certain is that the golden age of investor-funded tech subsidies is over.


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