The Convenience Economy

And what it means for the future

We’re living through a period of incredible innovation. 10 years ago, Instagram, Doordash, Venmo, Siri, and Slack didn’t exist. Plant-based meat wasn’t a thing, Airbnb and Uber had just been founded, and the Marvel Cinematic Universe was basically only Iron Man. 10 — or even just five — years from now, who knows what will be mainstream. It’s hard to imagine an industry that won’t be touched by advances in transportation, artificial intelligence, and digitization (to name a few).

In a world that’s constantly changing, will anything remain the same? Most likely yes. Technologies evolve, but consumer habits are relatively stable. People will likely always want goods or services provided faster and at a lower cost; consumers will always desire a more frictionless experience.

In other words, we live in a convenience economy. Nearly everything, from how we communicate, to how we consume, to how we watch TV, to how we exercise and track our health has evolved towards the most convenient options available. Here are some examples:

🎬 TV and movies: over-the-top (OTT) services enable us to watch anything, anytime, anywhere. People are no longer restricted to only watching from the couch or at the specific times that their favorite shows air reruns.

📦 Delivery: Amazon Prime enables people to buy nearly anything from anywhere and receive it within a day or two. Food delivery services (Uber Eats, DoorDash, Postmates, etc.) make hundreds of restaurants available at your fingertips.

🚲 Exercise: Peloton has revolutionized fitness — members can enjoy the experience of a workout class from the comfort of their home. People save time otherwise spent commuting to a gym while gaining the ability to select their preferred instructor or class style. Increased optionality with less friction.

📞 Communication: people went from writing letters, to favoring phone calls, to texting. Each option was easier and more convenient than the prior. Similarly, Zoom has revolutionized meetings, and many believe the virtual meeting format will endure well after the pandemic.

🚗 Transportation: throughout history, people have sought ways to travel faster while simultaneously exerting less effort. We went from walking, to riding horses, to using horse-drawn carriages, to cars, to planes. Each offered faster transport with less effort than the prior (e.g. when driving a car you still need to steer, but you no longer need to worry about feeding the horse). Now, in large part due to the pandemic, we can transport virtually — simply booting up a laptop (and joining a Zoom room) enables us to hold meetings with people anywhere in the world.

The media tends to sum up these trends as part of a broader shift to a “digital-first” economy. And in some ways, that’s true: many of the categories outlined above have seen a convergence toward digitization. Yet what “digital-first” really means is that digital products and services provide the most convenience out of all available options. For now, the conflation is fine. But in the future, we might see a shift from a digital-first economy to an even more technologized economy. Focusing on the top layer — the digitization layer — of current trends will leave you standing in the dust when new technology comes along. Understanding how a desire for convenience shapes behavioral preferences, however, will better equip you to capitalize on those inevitable shifts.

Let me explain.

Characterizing Convenience

Oxford Languages defines convenience as “the state of being able to proceed with something with little effort or difficulty.” Convenient resources are often intended to save time, increase ease, and reduce frustration. Similarly, companies offering a convenience value proposition tend to aggregate options, improve discovery, and expand access.

Consider the history of television. In the 1950s and 1960s, shows would air once per week, and viewers would often have to wait until summer to watch reruns if they missed the initial airing. Then, in the 1980s, the invention of videocassette recorders (VCRs) enabled people to tape and/or rent their favorite shows to watch later. VCRs expanded access to shows by enabling people to watch a “rerun” essentially anytime (as long as the viewer remembered to schedule the initial taping or took the time to go rent it from a video store). One New York Times article from 1984 described the craze:

Video cassette recorders are so hot, in fact, that with production capacity currently at 100 percent and no inventory built up at the retail level, some manufacturers are warning of shortages over the Christmas season.

‘’We have a backlog in orders for several models — especially the low- end basic unit and the high-end deluxe line,’’ said Fred Wahlstrom, spokesman for the Sony Corporation. ‘’We can’t make enough of some of them.’’

Then came innovations like Xfinity’s “on-demand” service (introduced in 2003), which enabled members to choose from a selection of shows. As a result, VCRs soon became a relic. Viewers could watch nearly anything, anytime, but they couldn’t watch anywhere — they could only watch at home, where they had the service.

Unsurprisingly, a more convenient option emerged. In recent years, OTT services like Netflix, Hulu, HBO Max, and Disney+ have not just expanded the array of content but, more importantly, enabled access from virtually anywhere. They also added an element of discovery by using AI to recommend shows based on your viewing history. Instead of asking “what should I watch,” Netflix pre-empts with “we think you would like this.” Less friction for the viewer = added convenience. Consequently, linear TV — once thought to be a staple of entertainment and advertising — is in decline.

These trends towards better access, aggregation, and discovery hold true across the board. Pick nearly any industry and test this theory for yourself. You’ll likely be hard-pressed to find one that hasn’t moved toward improving convenience.

So, How Do You Measure Convenience?

Often just a few dollars at a time.

The sweet spot seems to be around $10. Food delivery and service fees tend to range from $4–7, the average monthly cost of a streaming service is ~$8.50, an Amazon Prime membership is $12.99/month, and many DTC subscription companies (like Dollar Shave Club, Hims & Hers, Birchbox, etc.) charge around $3–6 in shipping & service fees.[1] Similarly, we can look at how much consumers value a disruption-free experience: for streaming services that offer both an ad-supported and an ad-free model, the average difference is $4.25.

Another method to measure convenience is to compare the most convenient option with the next best alternative. There are instances — like food delivery — where there is an obvious upcharge for convenience. The $4–7 service and delivery fees (not including tips) often add 20–40% more to the bill than if you dined in-restaurant. With surge pricing, fees are even higher. Yet in other cases, the more convenient option is actually cheaper than the next best alternative. In the entertainment industry, the average consumer pays for 3.4 streaming services a month — equivalent to ~$29, which is about 1/3 the cost of the average monthly cable bill. Similarly, the average cost of an at-home exercise subscription is ~$31/month — around half the cost of the average gym membership.[2]

What Contributes to These Convenience Cost Declines?

Primarily scale.

For physical goods, increased production leads to skilled learning, batching, and bulk purchasing (I wrote about that with regard to EVs here). But, as discussed, automation and digitization tend to drive improvements in convenience — that’s why convenience enhancements are often characterized as shifts to a more digital world. With many technology companies, there are high fixed costs and low marginal costs so, to achieve profitability, the average price charged per user can decline as the overall number of users grows.

An example may help illustrate this concept. Consider a streaming platform — let’s call it TV+ — that has fixed costs of $100M annually (for cloud infrastructure, content, etc.). It costs $1/year to support each member. If there is only one subscriber, TV+ would need to charge that subscriber $101,000,000/year to break even. Not very economical. But, what if there are 10M subscribers? Total annual costs would equal $110M (=100M+1*10M). To break even, TV+ would only need to charge each subscriber $11/year. At 100M subscribers, total costs would be $200M and the breakeven subscription price would be $2/year. As scale increases, average cost declines.

This pattern holds true for many network- or platform-based technologies because such industries tend to be characterized by high fixed costs and low marginal costs. That’s also (in part) why so many tech companies are unprofitable today, yet may become immensely profitable in the future: they’re investing in fixed infrastructure now (at the expense of short-term profitability) to enable rapid scaling in the future.

One important takeaway is that these cost declines are driven by a transition from human-driven costs (e.g. labor) to digital ones. Human-driven costs tend to grow with volume: if you hire someone to mow your lawn, the price you pay doesn’t decrease as the number of lawns that person has mowed increases. There’s often a direct correlation between time spent and the cost of human labor. Yet a greater reliance on technology can reduce these costs: lawnmowers reduced the time it takes to mow a lawn (and likely improved company margins), while a fully autonomous lawn-mowing service would cut costs even further.

Technology-based businesses don’t experience as severe a cost-time trade-off. For some businesses — like those founded almost entirely on digital infrastructure/platforms — the trade-off is minuscule because digital systems can service millions of people at once (the trade-off is embedded in the price of ensuring sufficient digital capacity; capacity shortages cause servers to buffer). Additionally, one-time investments — such as creating a movie or filming a workout class — can create significant, lasting value. Such value also tends to scale as the business does: more users = more people accessing and benefiting from the content. As a result, these businesses can also focus their resources towards products and services that improve the experience: investments in better AI (think: TikTok’s for-you page), broadening access (e.g. Uber Eats expanding restaurant options), and more.

This also creates an important flywheel effect. Typically, a convenient product offering is attempting to gain share of and transform an existing market. Netflix did this with linear TV, Uber with taxis, Peloton with workout classes, Amazon with brick-and-mortar retail — the list goes on. As the product improves, it often gains share. As it gains share and grows, the company has even more capital to invest in product improvements. This flywheel is why, once convenience companies achieve scale, they become such a staple in society.

Considering Trade-Offs

We’ve talked at length about the benefits of convenience, but very little about the costs associated with achieving such luxuries. Even when identifying monetary costs associated with added convenience, we found that they’re (somewhat counterintuitively) often cheaper than the next best alternative. So, are there any actual trade-offs?

Convenience comes (most directly) at the expense of experience. For instance, by choosing to watch a movie at home, you forego the collective outpouring of emotion that comes with watching a film at a movie theater. (Watching Avengers Endgame for the first time at home just isn’t the same). Similarly, many people still enjoy going to the grocery store, attending in-person group exercise classes, and shopping at the mall.

There are some experiences people value very little, and those are areas where companies providing convenience have thrived. When ordering takeout, I’d rather have it delivered (and use the time saved to do something else) than personally go to the restaurant to pick it up. Given the choice between transferring money via Venmo or writing a check and depositing it at the bank, I’d pick Venmo 10 times out of 10. I — like many people — value the time saved, and thus am willing to pay a premium for those conveniences.

The Convenience-Experience Frontier

Interestingly, some companies are trying to make convenient options more experiential. One example is the rise of social commerce, which blends e-commerce with community and entertainment. Conversely, some businesses are trying to make experiences more convenient. Virtual reality might be one way to do this: you put on your VR headset and are suddenly transported to a (virtual) concert. Not quite the same as going to Coachella in person, but still a richer experience than, say, watching a music video on Youtube. Both of these — making convenience more experiential, and making experiences more convenient — have the overall goal of expanding the frontier shown above.

Where Does That Leave Us?

It should hopefully be clear by now that, in all but a few select industries, there will be a never-ending race to make life more convenient. We live in a convenience economy, where value is (often implicitly) measured not just in dollars but in time and quality.

So, what does this mean when building a business, thinking about the future, or trying to gauge which companies are here for the long haul? Given what we’ve discussed, there are a few ways companies can stand out in the convenience economy:

  1. Improve convenience, while maintaining the same cost point as competitors. This could look like a food delivery service that charges the same rates as Uber Eats or Postmates but promises delivery in under half an hour. (Such a future could be closer than we think — drones could average 15 deliveries/hour, compared to the typical 3/hour of a human driver).
  2. Lower costs, while providing the same level of convenience and quality as competitors. OTT streaming services are one area prime for this type of dynamic. At-home exercise subscriptions are as well. Yet as competition grows and subscription prices converge (typically to within a few dollars of each other), content and experience become important differentiators.
  3. Lower costs while improving convenience. This is hard but achievable — Coupang did it in South Korea (offering same-day delivery for ~$2.6/month) and has since surpassed Amazon to become the dominant e-commerce player in the country.
  4. Improve the experience while trying to maintain convenience. Social commerce example discussed above.
  5. Make the experience more convenient. VR concerts example also discussed above.

At the end of the day, these likely aren’t the only ways to succeed. They do, however, provide a useful framework for thinking about how businesses can enhance their value proposition in our ever-changing world.

But while the world might be changing, one thing’s certain: we live — and always have lived — in a convenience economy. 16 years ago, Amazon Prime’s two-day shipping revolutionized deliveries. Yet in 5 years, we’ll likely consider anything less than same-day shipping quite slow. Once we get used to a certain level of convenience, we forget how convenient it really is and start desiring even better service. As our reference point changes, so too do our demands.

In 500 B.C. the Greek philosopher Heraclitus said, “the only thing that’s constant is change.” 2500 years later, that’s more true than ever. Yet understanding the direction of change — and what drives that change — can make all the difference.

[1] Includes Netflix, Hulu, Disney+, HBO Max, Paramount+, Apple TV+, Showtime, Starz, Amazon Prime Video, Discovery+, Peacock Premium, and ESPN+.

[2] Includes Nike Training Club, Peloton Digital App, Peloton Bike/Tread subscription, Soulcycle at Home, Tempo, Tonal, Mirror, SWEAT, and Obe Fitness.

Student at Wharton. Interested in transformative technologies (EVs, clean energy, food waste, digital payments, etc). Follow me on twitter @AlanaDLevin

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