I recently read a paper on competitive advantages in which many value investors will be interested. It's from 2005, so it does talk about Apple as being a company with no competitive advantage, but I think it has many useful elements nonetheless. The paper whet my appetite for Competition Demystified, which I look forward to reading very soon.
What do you think about the paper's conclusions? Do you buy this take on competitive advantages?
2 comments:
I agree with Greenwald's take on competitive advantages, and I think he's right about Apple lacking competitive advantages in the computer business. Apple reached their current position through superior execution – innovating better and faster than the competition – iPod, iPhone and iPad. It's possible that if they hadn't come up with the iPod they wouldn't be around today. Even now their computer sales account for less than 20% of their revenue, and these sales have benefited from some of the competitive advantages Apple has developed more recently.
Apple now has a certain degree of customer captivity through the integration of their own products and the fact that their customers invest significant amounts of money into music and apps that can only be used on Apple devices. They also have economies of scale in the smartphone and tablet spaces resulting in lower fixed costs per unit than competitors. However, I still think it's superior execution more than structural advantage that's contributing the most to Apple's success, particularly in the areas of marketing, design and efficient product development (their narrow product line plays an important role in lowering fixed costs per unit).
I think you're going to love Competition Demystified. It's probably the best book available on competitive advantage – and at the very least it's the most practical. Porter is great on the theory, but Greenwald makes it easy to apply.
Excellent blog. Keep up the good work.
Thanks, Harrison. I think I would agree with your assessment.
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