Monday, April 15, 2013

Bruce Greenwald and Judd Kahn on competitive advantage and Apple (circa 2005)

The book Competition Demystified is one of my must-read investment books (published in 2005). The excerpt below contains both some good information on looking for competitive advantages, but it also shows how quickly things can change—especially in the technology industry—and that it is probably wise to never use definitive phrases such as “is going nowhere” or “no chance of doing so today”.
For all of Steve Jobs’s brilliance and the elegance of Apple’s product design, it seems consigned to always push uphill against the advantages of Microsoft and Intel. In the PC industry, Apple is going nowhere.
In the approach we recommend here, the central question is whether, in the market in which the firm operates or is considering entering, competitive advantages exist. If they are present, what are they and who has them? We have described two tests for their existence: stable market shares and a high return on investment for the dominant incumbent firms. To keep the analysis manageable, our advice is to move one step at a time. Begin with one force—potential entrants/barriers to entry—not five. Start simply and add complexity later. Whenever things become confusing, step back and simplify again. Clarity is essential for strategic analysis. Finally, “think local.” Whatever historical promise existed in Apple’s strategic position lay in the segment of desktop publishing and other graphic-intensive applications. It had virtually no chance in taking on the broad PC industry, and it has no chance of doing so today.