There's an ad in my app, monsieur
Uber and Instacart are turning to display advertising to supporting lagging revenues. A discussion on what this means for companies of all stripes.
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Uber is an app which helps people get from one place to another. Instacart is an app which helps people order groceries for pickup or delivery. Each company’s premise is that when someone uses them for the aforementioned services, they take a cut of the total price. So, the more these companies can get people to use their services and simultaneously keep costs down, the more successful they’ll be. I have a master’s degree in international business.
Both apps are now also selling display advertising. This means, when you’re gazing at Uber to see how your trip is going, you might see an advertisement for Marriott. Instacart’s a bit of a different case as advertising’s been a part of its business model for a while, albeit in the search function. As in, brands bid on keywords to appear higher in search results when users are looking for products. If you’re the type of sicko who only enters the word ‘soap’ into the search bar, you may have been swayed by this method of advertising.Â
Last year, Instacart lost $300 million and Uber lost $6.77 billion. Over their lifetimes, both have been floated by loads of cheap venture capital money, allowing them to prioritize capturing market share over profits. But, with the VC money machine slowing down and rising labor costs, both are looking towards the internet’s sturdiest and most reliable form of profit, advertising, for buoyancy. Â
The move to advertising as a supporting revenue stream isn’t anything revelatory. See: movie theaters, taxi cabs, and public transportation. Because both firms have such immense VC backing and user bases, they’re not going anywhere anytime soon. Yet, the entry into display advertising by these two companies in particular reveals how untenable and unremarkable on-demand apps’ business models are. In concert, these two factors demonstrate just how imperative advertising is becoming to the survival of apps we use on a daily basis.
As of 2020, Instacart had over 9 million users compared to Uber’s 93 million. Despite the difference in user bases, both apps garner a lot of eyeballs, and thus both present a juicy opportunity for in-app display advertising.Â
What makes these two instances special to me is that neither company has ever been particularly successful by the standard metric of earning a profit (Instacart did turn its first profit last year in April, in the midst of the pandemic). And not just for a year or two, but for their entire lifetimes.Â
Rising costs--labor, goods, logistics--aren’t afflicting only Uber and Instacart. Given this, it’s conceivable more companies will end up like these two, needing to lean on this strategy to support lagging growth and profits. With that in mind, it’s likely the strategy will proliferate even more rapidly than before the pandemic. So then at what point do most things turn into magazines where we pay for the product, but it’s really advertising which supports the business?
The use of advertisements has always been a means of using people’s attention as a subsidy for the actual product. With media like newspapers (digital or physical), movies, or cable television, we’ve always paid twice. Same with riding the subway, waiting for a bus or even reading a menu (Cheesecake Factory is notorious for this), we are held captive by advertisements in our view Once with money, and a second time with attention. Try as we might, as long as our eyes and ears are focused on that thing, it demands a slice of mental bandwidth.Â
As the creep of display advertising oozes forth from our social and digital media into more tangible products and services such as Uber and Instacart, we’ll reach a point of too many ads everywhere all the time. It’s shocking we haven’t already reached this moment, but at some point, if it hasn’t happened already, the returns on these advertisements will cease to provide any additional utility for both advertisers and those publishing the ads. Likely through some combination of mass exhaustion, annoyance, and oversaturation. Â
In this sense, media--social, digital, print, or otherwise--has a distinct first-mover advantage over products like Uber and Instacart in that we already anticipate the presence of advertising on their platforms. Because of this, and the law of diminishing returns on advertising in general, I predict we see a return to what some VCs would consider more provincial technologies such as cabs and store-operated delivery. To an extent, this can already be seen in New York City, where taxis are both surging in popularity and beating rideshare apps such as Uber and Lyft on price.
Uber and Instacart each employ on-demand, zero-hour contractor workforces which operate in political and legal grey areas, giving them a leg up on some of their more retro competition. Neither side is without controversy, but I’m optimistic the use of display advertising signals an equalizing playing field with less reliance on labor policy ambiguity.