Mclowd Community Newsletter November 2019

Welcome to the Mclowd Community Newsletter

Introduction

A friend of mine recently took a trip with Uber.

Notwithstanding that the transaction was effected via Uber, the driver spent the entire time promoting alternative ride-hailing platform Didi.

That such an outcome could occur is not surprising, given that:

  • Didi charges drivers a commission which is 80% less than Uber
  • These drivers keep all of the competing apps open on their phones concurrently, allowing them to cherry-pick customers at will

Until recently there was no precedent for this sort of per-unit price deflation.

Microeconomics just didn’t exhibit / support that sort of price differential between entities, even over the medium term.

However it is important for SMSF Trustees and their advisers to understand that they are now operating in an investment landscape where microeconomic sinkholes can open up and swallow the value of companies like Uber, literally overnight.

(Since its May IPO Uber’s entity valuation has been falling at rate of nearly A$250 million per day).

Capital Intensity vs Deflation

The capital deployed by the Mclowd Community since inception would have been torched by Uber in just 20 minutes.

Rather than access to capital, Mclowd’s success has been based on four distinct phases, each built on the other:

  • Hypothesis
  • Evidence
  • Consequence
  • Implication

While it must be acknowledged that there is still a lot of effort required, we are now deep in the consequence phase of the journey, as illustrated by the following metrics:

  • Practitioner sign ups every 36 hours
  • A fund being added every 5 hours
  • Revenue event every 5 hours
  • QOQ revenue growth approaching 100%

However the pain that Uber’s stakeholders are now going through also indicates that the distance from consequence to implication will be all too short.

(Things can move very quickly now, because like a landscape that has been drying out over a period of years without anyone really noticing, even a deflationary ember – such as Didi – can turn into a conflagration in a heartbeat).

Conclusion

The breadth of Travis Kalanick’s vision was sufficient to attract tens of billions of dollars in capital, and it is clear he expected the company he founded to change the world.

And in some respects he is being proved correct, because by the time Uber, Lyft, NBN Co, We Work and their peers have finished destroying capital on a scale for which there is no precedent in modern economic history, they will have fundamentally altered the process by which capital itself is deployed.

Moving forward – and before they sign that cheque – those who are tasked with the stewardship of capital will pause to reflect on a simple reality against which their decision(s) will eventually be judged:

If the globally-defined marginal cost of a product or service is zero, the price of that product or service will eventually – and inevitably – approach zero.

Regards

Ashley Porter

Managing Director
Mclowd Pty Ltd

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