Clear: The Perfect Trojan Horse

A short essay on the company behind those cute white and blue check-in kiosks at your nearby airport

Hey everyone,
Greetings from Washington, D.C.!

Every business model has its strengths and weaknesses. For example, a one-time upfront payment model like Adobe had for its flagship product Photoshop offers significant revenue at the start of a customer lifecycle and de-risks the entire endeavor. On the other, a subscription model can lead to higher lifetime value and certainly forces an organization to continue to innovate on features and usability. And there are of course other dimensions that a business model could be judged on.

But if I could choose a single business model for a company that I’m in charge of, I would choose ones that are practically government-granted monopolies. Think the big utility companies, those in the business of extracting natural resources, and companies in the military-industrial complex. It’s legal regulatory capture at its finest.

Slightly behind this crowd are companies based on soft regulatory capture. Clear, the company responsible for those cute blue check-in kiosks at your local airport’s security checkpoint — in case you haven’t forgotten what an airport security checkpoint looks like — is one of these companies.

They are going public soon and with travel picking back up again in the country, it’s an interesting time. What follows is an explanation of Clear’s original offering, how they weathered COVID-19, and what that says about their future ambitions.

Clear’s original offering

Clear’s original offering was pretty simple — get customers to pay an upfront annual subscription fee for a faster experience through security checkpoints at airports. This model has some interesting characteristics:

  • It’s rivalrous: There is a finite amount of space available in an airport terminal. So, there is a practical upper limited to how many companies can be genuine competitors to Clear in its original vertical.

  • There is natural expansion built-in: Once you have a Clear kiosk/check-in line in one airport, it’s easy for those original customers to expect that at other airports. More importantly, once you have cleared the regulatory hurdle for one airport, it’s easy to clear it for other airports.

  • There is upfront friction: Signing up for a service like this is not as simple as logging in some credentials on a web form. You have to go in to give your fingerprints and other biometric information at the beginning of the membership process. There’s built-in friction to that process. You’re unlikely to churn after going through that upfront effort.

COVID-19: The company’s resilience

Of course, 2020 was not the hottest year for travel-centric companies. With air traffic down considerably, it’s not surprising that Clear should have faltered as well.

But that is not what happened.

Instead, Clear’s revenue was up 20% to 230.8 million in 2020 and net loss were down to $9.3 million from $54.2 million.

How did they do this?

The floor on natural churn I mentioned above is part of the story — if you were a frequent business traveller before the pandemic, it’s possible that you’re fine with eating the one year cost of the subscription for future use of the platform.

But let’s not discredit Clear’s efforts here. It launched its Health Pass feature which allows users to show healthcare data such as COVID test and vaccine records. This use case is not just limited to airports, but can also be used at sporting and dining events.

Clear’s new markets

That last sentence offers a glimpse into Clear’s future. Having linked identity and security in the one of the most regulated industries, Clear now wants to extend its reach into more mundane, but potentially larger and more lucrative ones. Hypothetically, the market could be anywhere where you have to stand in a line — a physical one or a digital one.

That’s a broad expansion of the addressable market and while partnerships and investments from the NFL and Danny Meyer’s Union Square Hospitality Group are interesting, they are not done deals by any means. These venues do not operate like airports — the barriers to entry are much lower and the theme of “regulatory capture” does not really apply here. What is true is that there are very few identity-authentication companies which have been able to amass 5.6M members. Fewer have physical kiosks in every major city in the United States. The scale of the company when it comes to linking identity and biometrics might only be eclipsed by the federal government.

Clear the platform

The most exciting version of the company is one where the company is a platform upon which other companies build on. There is an opportunity here to layer on all sorts of offerings. You check-in through a Clear kiosk border control at arrivals and automatically have an Uber ordered to pick you up. With the same use case, you can check-in to your hotel where the process is also Clear-enabled. And these are some of the less imaginative ones!

Clear has been able to build a pretty formidable company right in front of our eyes and I’m pretty excited to see where the company goes next.

Until next Saturday,
Sid