Doomsayers are seldom in short supply but some dooms sound more plausible than others. The economic ones are definitely worth examining.

Bean counters have noted that many iconic businesses (Uber, Lyft, Airbnb, WeWork, etc.) are not very profitable. A market shakeout will probably raise the cost of urban living. Here’s some background:

To maximize customer growth they have strategically—or at least “strategically”—throttled their prices, in effect providing a massive consumer subsidy. You might call it the Millennial Lifestyle Sponsorship, in which consumer tech companies, along with their venture-capital backers, help fund the daily habits of their disproportionately young and urban user base. With each Uber ride, WeWork membership, and hand-delivered dinner, the typical consumer has been getting a sweetheart deal…

But this was never going to last forever. WeWork’s disastrous IPO attempt has triggered reverberations across the industry. The theme of consumer tech has shifted from magic to margins. Venture capitalists and start-up founders alike have re-embraced an old mantra: Profits matter.

And higher profits can only mean one thing: Urban lifestyles are about to get more expensive.

Derek Thompson, “The Millennial Urban Lifestyle Is About to Get More Expensive” at The Atlantic

The fundamental problem, in Thompson’s view is that the these companies spend way too much money finding and retaining customers in relation to what customers pay them. Few or none are profitable as a result.

WeWork’s recent widely publicized failed share offering and the layoff of 2400 employees focuses attention on a specific problem:

The groups affected by the layoffs include WeWork’s architecture unit, which has helped curate WeWork’s distinctive shared office spaces known for their modern design, and its technology department, among which are coding and software teams, according to people familiar with the matter.

Job losses in the technology department further undercut WeWork’s central claim that it is primarily a technology company, not just a real estate firm, and therefore merits a much higher valuation.

Sheila Dang, Carrie Monahan, Joshua Franklin, “WeWork to lay off 2,400 employees in SoftBank revamp” at Reuters

The problem is, WeWork is not a technology company. Neither is Airbnb or Uber. They all use software via the internet to leverage surplus physical space, whether the space is in an office building, a private home, or a privately owned car.

In short, they aren’t creating a new high-tech product; they enable more efficient uses of existing low-tech ones. They are stuck with all the real-world expenses of the non-digital economy without a magic new wand to wave. But venture capitalists like SoftBank have treated them as if they had invented the internet or 3D printing:

Why then do SoftBank’s portfolio companies need so much growth capital, yet remain unprofitable for so long? Because SoftBank has focused its investments on capital intensive, low-margin, mature businesses wrapped in a patina of technology that, for all the hype, don’t fundamentally improve weak operating economics. Add to that SoftBank’s relentless cheerleading for growth-at-all costs, the siren song of unlimited follow-on capital at artificially inflated valuations, and breathtakingly inadequate board oversight, and you have the prescription for disaster.

Take WeWork. The temporary office space market has traditionally been modestly profitable, slow-growing, and subject to business-cycle risk. Thanks to SoftBank’s nearly $11 billion injection, WeWork embarked on a frenetic worldwide expansion spree, attracting customers with a compelling but profit-killing value proposition: deeply discounted short-term leases, pricey design touches, and unlimited free kombucha and craft beer. Like Uber, despite predictably ballooning losses in its core business, WeWork also invested heavily in new ventures with scant evidence that its technology or operating model could ever deliver sustainable profitability.

Leonard Sherman, “WeWork’s Failure is SoftBank’s Day Of Reckoning” at Wired

Another analyst is even more blunt:

WeWork marketed itself as not just an office landlord intermediary, but as a technology company with a new way of doing things but basically it is a real estate middleman only slightly different from its competitors. It’s a story we’ve seen in countless other businesses in a wide range of sectors—too much leverage and an inability to meet debt obligations when they come due.

George Schultze, “Why WeWork Won’t Work — Hello Neumann!” at Forbes

Another troubled business model, Sherman argues, is Wag, the dog walking service which, like so many of these service companies, offers “little demonstrated technology potential to improve operating economics.”

That makes sense. One can’t really automate either the dog or walking the dog—and those are the time-consuming parts that software can’t really change. Meanwhile, Uber and Lyft continue to lose money while Airbnb is barely profitable.

Will looming market corrections implode Silicon Valley? A financial analyst comments:

We are already seeing Uber crashing back to reality.

Its once-lofty valuation of $84 billion has fallen to $45 billion – with the stock just off its lowest price. It will not be able to sustain this valuation much longer. Lawsuits, new regulations in California, and increasing pressure from major cities like New York only add to the fact that Uber is just an overpriced commodity.

Lawrence Meyers, “Corrupt Values Will Eventually Implode Silicon Valley” at Townhall

Meyers thinks it’s only a matter of time before regulatory authorities also have some pointed questions for Elon Musk. Here are his predictions for Tesla and SpaceX: “At some point, Tesla will likely be acquired by a legitimate car manufacturer for a few billion dollars. SpaceX’s best hope for survival is some sweetheart back-room deal with the US government.”

Well, it is nice when people go beyond doomsaying to make specific predictions. We can check back and see. Meanwhile, it appears that a company can lose its investors a lot of money if it just pretends to be high tech.

See also: If Big Tech were spinning its wheels, would we know? Not necessarily, says an economics prof who worries about the slowing pace of innovation but not of hype.