Why Unicorns Matter

Call them unicorns or bubble companies, but there is something significantly relevant about the technology start-ups that have joined the $1B+ valuation club. When investor Aileen Lee coined the phrase "unicorn" in late 2013, there were an estimated 40 companies on the list. Now there are almost 100. Whether or not these valuations prove out or not is a hotly contested debate right now; but what is missed is how important these companies are to the world. To consumers. To innovation. To the balance of power. Whether or not venture capital IRR's are met or not.

Most can remember the time of the DOS operating system and the step change that occurred for consumers once the upstart Microsoft (MSFT) released Windows. Good timing and strategic blunders by the hardware vendors at the time (i.e. IBM) afforded Microsoft the opportunity to quickly gain a dominant position in what became arguably the most important market on the planet. Forget that there hasn’t been any meaningful innovation to the computer operating system since then; it never mattered to Microsoft's shareholders. It still controlled over 90% of computers.

You can see similar domination by many of the new technology incumbents in markets very important to consumers and enterprises. Apple (AAPL) took a similar approach and market share gain in mobile phones (at least now it’s a two horse race with Android). Oracle (ORCL) and Salesforce (CRM) have dominated the enterprise software space for many years now. Amazon (AMZN) crushed every meaningful e-commerce company that stood in its way in the 1990s and 2000s. Google (GOOG) continues to dominate search. Facebook (FB) boasts 1 in 7 people around the world as active users. While many of the new incumbents appear much more friendly that their predecessors (i.e. “Do no evil” compared to Ballmer’s Dr. Evil appearance), their market dominance should continue to be tested. Enter the unicorns.

Uber may not only be a cab company but also a formidable commerce competitor in the all important race for local services. Pinterest and Nextdoor have cult-like followings that Facebook has not had since it was in the university setting. Hootsuite and Palantir have a leg up on the big data front compared to Oracle and IBM. The unsustainable profit streams of big pharma and large healthcare service providers will be tested by ZocDoc and Theranos. And even the U.S. itself faces stiff competition since many of the unicorns such as Meituan and Flipkart are based in Asia.

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