2 of Apple's Economic MOAT.

Updated: Apr 17

Table of contents


Apple’s MOATs

  1. MOAT 1: Apple’s superpower- their BRAND

  2. How to tell if a company’s Brand asset is as robust as we think they are

  3. Apple products are targeted towards people who are “Different”

  4. All of Apple products are voted to be the best in their respective product ranges every year

  5. “Apple products are just better, don’t @ me" - Apple's consumers

  6. An addressable market for Apple they can tap into: dissatisfied non-Apple users

  7. Apple products provide better personal data & privacy protection

  8. MOAT 2: Switching Cost for Apple’s customers

  9. “We are already cyborgs”

  10. Apple’s Ecosystem- consumers will be trapped

  11. (Great business model): Customer lifespan is actually super long


Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.


 

Apple’s MOATs


Warren Buffett thinks Apple is “probably the best business in the world”.
Warren Buffett thinks Apple is “probably the best business in the world”. [11]

Warren Buffett, the Oracle of Omaha who had been long known to avoid tech stocks throughout his whole investing career, started buying Apple stocks in 2016 and subsequently made it their largest stock holding as of 2019.


Berkshire Hathaway’s 5 biggest stock holdings at the end of 2019
Berkshire Hathaway’s 5 biggest stock holdings at the end of 2019 [12]

The man who popularized the term Economics moat, understood the robust potential of Apple’s most important form of intangible asset, and that is their BRAND.



 

MOAT 1: Apple’s superpower- their BRAND


Few of the plenty of hardcore Apple fans who tattooed the logo on their body to display their fondness towards the brand.  I guarantee you will not find as many or any other people tattooing logos of Samsung, Huawei on themselves.

(Image above): Few of the plenty of hardcore Apple fans who tattooed the logo on their body to display their fondness towards the brand.

I guarantee you will not find as many or any other people tattooing logos of Samsung, Huawei on themselves.



Apples’ loyal following goes back to 1990s when Apple was in the verge of bankruptcy,

their devoted fans hung around the Mac section of computer stores to recommend their products to shoppers. [13]


Apple presented as the world’s most valuable Brand in the world by Forbes
Apple presented as the world’s most valuable Brand in the world by Forbes [14]


a. How to tell if a company’s Brand asset is as robust as we think they are:


Here is one way we can identify if a company truly possess a strong and lasting Brand Moat power:


Think of it this way,


If the company’s competitors have as much money as them,


and they are able to replicate or take away the success of the company’s brand

(in other words, use money to buy their fans or build their brand power).


The company’s brand asset is probably not as strong as you think it is. (Note: this does not mean that the brand asset is not strong at all, just that it does not have as much of an edge that you may think it has).


An example would be Nike and its peers,

Nike is currently the leading athletic apparel seller in the world.


And also the most cash-rich amongst their peers in the industry.


Nike's cash in hand vs their competitors'Nike's cash in hand vs their competitors'
Nike's cash in hand vs their competitors'

However, if any of these companies have as much cash as Nike,


They will be able to sign more endorsement deals with superstar athletes.


And overtime when any of these companies have more superstar athletes that outperform the other companies’ athletes,


their brand will end up being the most popular one among the rest.



But up until now, it is very difficult for the other companies to entice athletes to join them over Nike because it is difficult for them to match Nike’s lucrative offers to the athletes.


Take the 3 most popular athletes below for example:


Had Michael Jordan, Cristiano Ronaldo and LeBron James signed with Adidas instead of Nike and proceeded to as successful of a career as they had today.


Adidas would have been a lot more popular than they are today,

possibly even more popular than Nike.


Michael Jordan wanted a shoe deal with Adidas so badly that he went back to renegotiate with Nije
Image source: insider
Cristiano Ronald's $1 Billion Nike Deal
Image source: forbes
Adidas and Reebok wanted Lebron James badly, but Nike made him an offer he could not refuse
Image source: theundefeated


But this is not the case for Apple

and the industry they are operating in,



Although Samsung has almost twice as much short-term cash as Apple,

Enabling them to spend more money on activities like Marketing, Sales and Advertising.


Samsung spends lots of money on Celebrities endorsements, racking up a long list of celebrities to endorse their brands. Blackpink
Samsung spends lots of money on Celebrities endorsements, racking up a long list of celebrities to endorse their brands. (Image source: blackpinkupdate)

Even with Samsung’s high amount of celebrity endorsements and other marketing efforts,

plus their high amount of cash holdings compared to Apple.


They do not have as large and as loyal of a group of followings from their fans compared to Apple.


This is a sign that Apple has created something very unique.



Apple created a culture and movement which is deeply adored by loyal fans around the world over a long period of time. And this is very difficult for their competitors to replicate even though they have access to more resources or cash.


The irony though is that a number of these celebrities sponsored by other brands,

ended up using iPhones anyway behind the curtains.


And these celebrities’ genuine preferred choice is the vote that truly counts. [15]





Social Media following, the new form of currency


The number of followers or subscribers an entity have on social platforms like Youtube, Instagram and Twitter is a form of new currency in today’s world,


Companies are willing to pay a lot of money to increase their number of followers because these group of people are highly influenced by any forms of communication they published on their accounts or channels.


When we compare Apple’s amount of followers with their peers,

we can see Apple is leading significantly.


Apple’s Instagram’s amount of followers alone is more than the sum of all of its peers’ listed above.
Apple’s Instagram’s amount of followers alone is more than the sum of all of its peers’ listed above.[16]

Similarly, Apple’s Youtube amount of susbcribers alone is more than the sum of all of its peers’ listed above.
Similarly, Apple’s Youtube amount of susbcribers alone is more than the sum of all of its peers’ listed above.

“Never bet against a company that has raving fans”



It is very unlikely for the Samsung Brand to be as trendy & fashionable as Apple's.


Albeit Samsung internationally recognized,

it is very difficult for a brand like Samsung, to become as hip and as trendy as Apple.


When people think of Samsung, they may also think of home appliances goods like washing machine, fridge, air conditioning units etc.

which may not be the most fashionable items.



And worst yet, there will almost always be an association of exploding phones with their brand in the mind of consumers,

and that may deter them from purchasing their smartphones for some time to come.


Personal note, even while I was using my Samsung phone, I still dared not answer call on it while it was charging.
Personal note, even while I was using my Samsung phone, I still dared not answer call on it while it was charging.



b. Apple products are targeted towards people who are “Different”.



The competitive advantage that sets Apple apart from their peers goes back to their culture instilled in the organization since their founding days.


Their products were not meant to be targeted towards the ordinary people (nor the mass market).


Apple products were and are targeted towards:

· People who were against the status quo

· People who think different

· People who consider themselves rebels against the system



“Here’s to the crazy ones.. the ones who see things differently” Apple chose prominent figures who were against the status quo to represent their brand.
“Here’s to the crazy ones.. the ones who see things differently” Apple chose prominent figures who were against the status quo to represent their brand.[17]

And this was a movement that is very appealing to many until today


Although the younger consumers may not be aware of the founding story,

Apple’s marketing messages up till today are still revolved around their main slogan of “Thinking different”.

 Apple Files Four Applications covering the Figurative version of their 'Think Different' Trademark in Europe
Apple Files Four Applications covering the Figurative version of their 'Think Different' Trademark in Europe [18]

This strategy works really well because everyone possesses a degree of innate human desire to be unique and different from the others,


be it the way we think, dress, act or what we choose to represent.



And Apple’s products are an opportunity for us to express the idiosyncrasy of our peculiar personalities.


Apple’s products were designed to be a symbol for their customers for combating conformity and asserting originality.



Which is why Apple products will most likely always remain in the premium range,

to maintain their uniqueness and the sense of exclusivity for the brand.


Because if the majority of their products are made affordable to the masses, it will no longer be “different”.


Apple will most probably continue to charge premium prices for their products to maintain their edge over their peers.
Apple will most probably continue to charge premium prices for their products to maintain their edge over their peers.


 

[How Apple will likely maintain their status as a more Fashionable and Stylish brand compared to their peers]:

i) Apple products are heavily endorsed by influential and popular figures


Celebrities, influential figures and themes use Apple products

and it became a pop culture icon.


Apple's 'The Rock x Siri' Cracks Top 10 Most Watched Ads on YouTube in 2017
Apple's 'The Rock x Siri' Cracks Top 10 Most Watched Ads on YouTube in 2017 [19]

along with Mega popstars like Taylor Swift

and Drake


Shah Rukh Khan, Apple’s brand ambassador in India
Shah Rukh Khan, Apple’s brand ambassador in India [21]

A character modelled after Carmen Electra using an iPhone look-alike device in the Grand Theft Auto V poster, a game which was sold over 100 million copies
A character modelled after Carmen Electra using an iPhone look-alike device in the Grand Theft Auto V poster, a game which was sold over 100 million copies [22]

And as mentioned above, even celebrities who are endorsed by other brands ended up using iPhones behind the curtains, betraying the sponsorship agreements.


When many popular figures and themes either endorse or take the risks of using Apple products even when they are not supposed to,


it becomes a social proof to the public that Apples’ products must be superior compared to the alternatives in the market.




Entrepreneurs and popular business leaders use them - creating an association of success & good performance with Apple products in the minds of consumers.)


Some of the most popular entrepreneurs in the world with their Apple products
Some of the most popular entrepreneurs in the world with their Apple products [23]


Apple computers are the go-to-choice for developers around the world.


Not to mention that it is an impressive feat for Apple to develop their own operating system too

And their computers are generally a go-to-choice for developers and programmers around the world.

Some of the reasons why programmers prefer MacOS
Some of the reasons why programmers prefer MacOS [24]


ii) Imitation is the best form of flattery:

Apple being the trendsetter in the industry, it is inevitable that some of the players will be imitating their products and feature designs.


Some of Apple’s designs & features copied by other players in the tech industry over the years.
Some of Apple’s designs & features copied by other players in the tech industry over the years [25]

Some of the players even copy Apple’s designs and concepts shamelessly to the exact.


Huawei’s Matebook x pro series are supposed to be the equivalent of Apple’s Macbook pro version of laptops
Huawei’s Matebook x pro series are supposed to be the equivalent of Apple’s Macbook pro version of laptops [26]


iii) Apple products have become a symbol status


Because of Apple’s premium product price ranges,

along with their influence in pop culture

and endorsement by influential figures.


Apple products users are perceived to be in “higher status”

since their products signify wealth and status.


Apple product users are perceived to be more appealing.
Apple product users are perceived to be more appealing. [27]

“Apple products make consumers feel good about themselves. it’s because they make the consumer feel like they are a better person for having the product”

-Wyzowl[28]






iv) Apple’s exquisite retail stores


Apple probably has some of the best-looking retail stores in the world.



Image sources: Apple

i. Apple store in Pudong District, Shanghai, China.

ii. Apple store in Marina Bay Sands, Singapore

iii. Apple Store in Downtown Brooklyn, New York



Did you know that Apple had the highest amount of Sales per Square foot ($5,546)

vs any other retailers in the world at 2017?

Apple had the highest “sales per sq foot”  compared to any other retailers in the world
Apple had the highest “sales per sq foot” compared to any other retailers in the world [29]

This was of course contributed by the premium prices Apple charge for their products,

It is also undeniable that that their retail stores designs are the most elegant when compared to their peers in the electronic devices segment.


It is obvious that Apple pays a lot of attention to details to their retail stores which gave them an edge over competitors.


They have design patents on nearly everything in its stores, even their shopping bags. [30]