You don´t need to be a business expert to notice that many of the most successful companies of recent times are also among the most recognizable brands in the tech business. A brand can be a fantastic competitive advantage, and the tech industry is a fertile ground for growth and innovation. For this reason, the combination of superior technology and valuable brands can be a powerful thing for investors.
Not every big company with a well known brand has a competitive advantage in that brand. In order for it to be valuable to investors, the brand needs to be capable of producing a different reaction from consumers in comparison to other brands. If the consumer is willing to pay a premium for that product, or will simply choose that alternative versus a similar product from the competition, then that brand provides a competitive advantage.
The Apple Experience
Think about Apple Inc. (NASDAQ:AAPL) for example. You know that you can expect great design, a fantastic integrated ecosystem and friendly customer support when you buy something from the company. But where Apple Inc. (NASDAQ:AAPL) is much stronger than the competition is in the user experience, those things that cannot be described by words, but you need to actually use the products in order to understand – or feel – its advantages.
Once you know what Apple Inc. (NASDAQ:AAPL) brings to the table, and how different it is from other products, then you are more likely to pay extra for an Apple device. You will never convince somebody to pay extra for an Apple Inc. (NASDAQ:AAPL) product by discussing memory capacity, battery life or that sort of things. It´s for this reason that the Apple Store is of utmost importance as a marketing tool for the company: it puts customers in contact with the different user experience that the Apple Inc. (NASDAQ:AAPL) brand means.
In emerging markets, where store presence is limited and many customers have not previously experienced Apple Inc. (NASDAQ:AAPL)products, the company is in a disadvantaged position versus cheaper competitors. That´s why the company is sacrificing margins with the iPad Mini in order to bring in more consumers and increase brand awareness in those regions. From Tim Cook in the Goldman Sachs Tech Conference:
Over 50% of the people in countries like China and Brazil that were buying an iPad don’t own an Apple product. This is a huge thing for us to go out and show people what Apple is and introduce them to the company. Through the years, we’ve found a very clear correlation between people getting in and buying their first Apple product and some percentage of them buying other Apple products.”
Everyone Loves Google
Google Inc. (NASDAQ:GOOG) has faced some criticism regarding privacy issues and possible misuse of search results but, for the most part, everyone loves Google. The company has an undisputed leadership position in its core search business, and its technologies like Android, Gmail, Maps and YouTube, to name a few, are amazingly popular.
It´s really easy to love a company like Google, it provides many tremendously valuable services for free, and all it asks for in exchange is that we tolerate some advertising so that the business can generate its juicy profit margins.
Google has a very specific image when it comes to its relationship with users and employees, and even its “don´t be evil” motto sets it apart from other big tech companies when it comes to corporate image. Building those amazing self-driving cars or augmented reality glasses says a lot about Google and its culture of innovation and disruption, even if it those products don´t have any financial impact for the company in the middle term.
The more we use Google and its different services, the better the company gets at obtaining and processing information. Brand popularity helps building better products; this attracts more users which increases the quality of the service. This virtuous cycle of growing brand recognition and increasing product quality means a rock solid competitive advantage for Google.
The Value of Reliability
According to Interbrand, International Business Machines Corp. (NYSE:IBM) is the second most valuable brand in the world behind The Coca-Cola Company (NYSE:KO). The company is also the second most respected global corporation behind Apple, according to Barron´s magazine. International Business Machines Corp. (NYSE:IBM) has been around for more than 100 years, and counts each of the Fortune 2000 companies as clients.
This is an enormously valuable asset in the IT business, where trust and reliability are decisive factors for commercial success. When looking for a provider of IT solutions, one crucial aspect is making sure that things will work as expected, or that any problem that may arise can be quickly and efficiently worked out. International Business Machines Corp. (NYSE:IBM) is one step ahead of the competition in that area thanks to the strength of its brand.
Besides, Big Blue has operations in more than 170 counties, and it offers a breath of products and services unmatched by the competition. So when a global corporation wants to make sure that its IT solution is not only reliable, but can also be expanded both in terms of services and global integration, International Business Machines Corp. (NYSE:IBM) is the most likely way to go.
Bottom Line
The tech business is notoriously dynamic and provides many interesting opportunities for growth; on the other hand, the booming technology of today can become obsolete in the blink of an eye.
That´s why it’s so important to look for companies with durable competitive advantages when investing in this sector, and these three tech bellwethers provide a combination of technological quality and brand differentiation which makes them particularly attractive for long-term investors.
Andrés Cardenal owns shares of Apple, Google and IBM. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and International Business Machines.
