Uber, the Unicorn Investing Class and the Bigger Picture

Behind Pando Daily’s paywall is an important letter by Hubert Horan, an aviation consultant with vast experience in airline competition and restructuring. Horan testified before Congress against both the Delta-Northwest and United-Continental mergers, and before the Department of Transportation against the alliance antitrust immunity grants which he says drove the radical consolidation of the airline industry. Horan clearly has solid professional bona fides, and claims no financial tie to Uber or any competitor.

Horan’s epic letter is about Uber and the “Unicorn Investing Class” funding Uber’s market dominance. Funding Uber-type unicorns—which are “purely exploitative”—is very different than funding Amazon/EBay unicorns which are genuinely based on competitive product/efficiency advantages, he says. Horan says pushing Uber-type unicorns is a radically negative advance “where willful exploitation based on the political power of the unicorn investing class becomes the entire basis for the enterprise.”

What’s the difference between Amazon and Uber?

Amazon offered a genuinely improved business model, argues Horan. It provided consumers with more choices, eliminated retailing costs, and accomplished warehousing and distribution efficiencies and scale no competitor could match.

In contrast, Uber “isn’t transforming the consumer product—it offers the exact same service as traditional taxi/limo operators.” The massive “subsidies” (i.e. investor capital) “that create the appearance that Uber offers better/cheaper service are not sustainable.”

Horan goes on to add that accomplishing Uber’s “artificial market power” depends on political might and public relations emphasizing the company’s “dominance is inevitable, and that resistance would be futile.”

What’s the point?—you may ask.

The point is Uber’s entrée into American cities has been an investor-enabled predatory-pricing scheme that—in combination with the capital-fueled political might to change existing rules—may well come back to bite consumers and provide a formula enticing enough to be replicated in other industries. (Our words, not his).

Here’s how Horan says it: “If the unicorn investing class thinks Uber has proven that tens of billions of private value can be created purely with PR and political strength, then ‘Unicorn manufacturing’ becomes an industry onto itself. Lots of investors will attempt to replicate the formula time and time again, and each new unicorn creates the need to increase raw political power used to enrich these investors, and to destroy any possible political opposition.”

Any lawmaker, activist or individual aware of the need to monitor the impact of fast money on American society should read this letter in its full form.