Hubert Horan is arguably the reason why short sellers have placed a $1.5 billion bet against Uber’s success as a public company.
Horan’s incisive and influential analysis of Uber’s business model has been in the public domain for years. Simply put, the longtime transportation-industry consultant has argued, in depth, that Uber is not financially viable.
But writing in an American Affairs essay called “Uber’s Path of Destruction,” he posits something more overarching: Investors will apply Uber’s propaganda techniques and playbook to similarly hijack other industries (against the public interest) in the future.
Reached by email, Horan himself summarized his essay:
“Uber (and ridesharing) was the breakthrough case where investors were seeking to create the entire corporate value of a company out of thin air. They were trying to create massive private wealth out of a company with no legitimate economic fundamentals (such as sustainable competitive advantage, positive cash flow or profitability).”
“Uber (and ridesharing) were also the breakthrough case where the propaganda-type narratives that dominate partisan political coverage were successfully applied to the development of a private-sector company,” Horan added. “Uber not only manufactured powerful narratives, but deftly manipulated the mainstream business and tech industry press into endorsing and promulgating them, and ignoring all of the economic evidence contradicting them.”
Horan’s full 28-page essay is well worth reading. Here is a sampling of his insights and arguments.
Uber’s economics “suggest” the company has no hope of earning sustainable profits, Horan writes. The company has no competitive-efficiency advantages, operates in an industry with few barriers to entry, and has lost more than $14 billion in the last four years.
Uber’s investors never believed the company would generate returns from superior efficiency; instead the goal was to establish a quasi-monopoly power.
“Given that both sustainable profits and true industry dominance seemed unachievable, Uber’s investors decided to take the company public, based on the hope that enough gullible investors still believe that the company’s rapid growth and popularity are the result of powerfully efficient innovations and do not care about its inability to generate profits.”
Long-Standing Taxicab Industry Challenges
“In a perfect world, customers want clean, sparkling cabs, and don’t want to pay higher prices for the increased availability and reliability required to get cars to instantly appear whenever they want,” writes Horan.
Horan posits that four “major structural issues” explain why taxis are challenged to optimize productivity and customer service: 1) Most taxi demand is low income; higher fares would shrink traffic and reduce utilization; 2) uneven geographic demand creates unavoidable empty backhaul costs; 3) extremely high cost of peak capacity; and 4) overcapacity risk.
“Uber did not suddenly discover ways to dramatically improve productivity and service quality that everyone else in the industry has been too stupid to recognize for the past hundred years,” Horan writes. “In fact, nothing in Uber’s business model solves any of the major problems that have long frustrated users.”
Subsidized Rides, Libertarian Propaganda and Regulation
In order to deflect attention from the fact that subsidized rides were the actual source of its popularity, Uber “put forward a variety of vague, unsubstantiated, and constantly changing PR claims designed to mislead the public into thinking its popularity actually had something to do with powerful efficiency breakthroughs,” Horan writes.
Uber employed libertarian propaganda to frame its actions as “a battle for innovation and freedom” and hide its less-palatable goals: eliminating competition and safety protections and the right of citizens to exercise oversight over urban-transport systems.
“Taxi regulations provided a rough compromise between legitimate competing interests, administered by officials accountable to voters,” Horan writes. “Uber is solely focused on the objective of private capital accumulation.”
Why This Matters to Society
Uber’s demonstration of how to use raw economic power “on an unprecedented scale” worsens the risks to society, Horan asserts. This is a playbook for how billions in investment capital can fund subsidies and manufacture narratives to skew or warp how markets are intended to work. The company has also demonstrated how propaganda techniques can be equally as powerful in a corporate context as a partisan political setting, he said.
“Investors will surely recognize what Uber has accomplished here, and will attempt to create corporate value by applying these same techniques in many more cases,” Horan writes.
Via email, Horan shared his thoughts on what he believes will happen to Uber next. “Now that they are public nothing major will happen soon; they have a great deal of cash on hand,” he said. “But either they begin to produce compelling evidence of a rapid path to sustainably profitable growth (enough to significantly boost the stock price) or they will steadily decline.”
By Dave Sutton, Melwood Global