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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.
Forget the lone wolf. In the investment jungle, the savviest predators hunt in packs.
Companies that build interconnected ecosystems of hardware, software, and services are the alpha predators, dominating their territories and rewarding investors handsomely.
But why? Let's delve into the hidden power of ecosystems and how you can leverage it to build a winning portfolio
The Bedrock: Standalone Products that Shine
Pre-requirement for this to work:
the individual products which make up the ecosystem have to work great by themselves.
Think Apple's sleek iPhones and iPads, or Adobe's creative powerhouse suite.
These are all exceptional products which attract users by itself, enticing them into a world where combining more of the products from the same company will further enrich and amplify their user experience.
The Benefits: boosted company growth and extended customer loyalty.
Investing in companies with strong ecosystems is about tapping into a hidden wellspring of customer lock-in.
Once users are ensconced in a well-designed ecosystem, switching becomes a chore, not a choice.
This translates to
✅ increased spending,
✅ longer lifetime value,
✅ and recurring revenue streams
all of which fuel company growth and shareholder returns.
The Moat: Network Effects and Switching Costs
Ecosystems build powerful moats around their businesses.
As more users join, the network effect strengthens, attracting even more users.
Think of a social media platform – the more people on it, the more valuable it becomes for everyone.
Switching to a competitor? Not so fast. Switching costs, like migrating data or learning new interfaces, become significant deterrents, further solidifying the ecosystem's dominance.
Identifying the Ecosystem Powerhouses
Not all ecosystems are created equal. Here's what to look for when picking your winners:
AI Chatbots: Your Investment Detectives
AI Chabots like Googlebard & BingAI can be a great starting point for investors to determine if the companies' have an existing ecosystem of products which tend to lock customers in:
You can use a prompt like:
I am a long-term investor and am interested to invest in companies that have an existing strong ecosystem comprised of exceptional products which tend to lock customers in and benefit shareholders.
Do you think Fortinet meets this criteria? Please provide some examples.How Fortinet & Tesla Tick the Ecosystem Boxes?
Fortinet:
Best-in-class core products: FortiGate firewalls are industry leaders, renowned for their security, performance, and scalability. They act as the gateway to Fortinet's broader security ecosystem.
Seamless integration: Fortinet's Security Fabric platform seamlessly integrates various security products like intrusion detection, endpoint protection, and secure SD-WAN, providing a unified security posture.
Constant innovation: Fortinet continuously updates its offerings, recently acquiring zero-trust leader Orca Security to strengthen its ecosystem and cater to evolving cybersecurity threats.
Customer lock-in: Switching from Fortinet's holistic security ecosystem to a patchwork of competing solutions becomes cost-prohibitive and complex, keeping customers loyal, and increased flexibility for Fortinet to increase product pricing.
Tesla:
Best-in-class core products: Tesla's electric vehicles are some of the best in the EV market in terms of range, performance, and technology. These individual products are the gateway to the Tesla's ecosystem.
Seamless integration: Tesla vehicles connect seamlessly to the Supercharger network, driver assistance features, and Tesla app, creating a smooth, convenient experience.
Constant innovation: Tesla leads the industry in battery technology, autonomous driving software, and vehicle design, constantly enhancing its ecosystem and attracting new customers.
Customer lock-in: Owning a Tesla opens doors to exclusive benefits like Supercharger access, OTA updates, and a supportive community, making switching to another brand less appealing.
As a guideline, look for these traits in the companies.
🔍 Best-in-class core products:
The foundation matters. Look for companies with stellar individual products like Apple's iPhones.
🔍 Seamless integration:
Products should work together like clockwork, enhancing user experience and making switching unthinkable.
🔍 Constant innovation: The ecosystem needs to evolve and adapt. Look for companies that continuously add new features, services, and products, keeping users engaged and the ecosystem thriving.
In conclusion, long term investors should favor companies with a robust ecosystem of products.
Remember, the lone wolf may howl, but the pack hunts and prospers.
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