“Economic moat” is a term used to describe the protective barrier shielding a company’s profits and prospects from its competitors. Companies like Apple have wider moats, which not only offer the most protection but are also quite tough to breech. With a strong brand name, such as Apple, a company can translate its dominance into additional moat components including pricing power and market share. Now the question is, can any of Apple’s competitors breach Apple’s moat?
An interesting article by Seeking Alpha details how Apple continues to maintain its economic stronghold despite Steve Jobs’s demise, based on concept of economic moats popularized by Warren Buffett, the legendary investor and philanthropist. The article describes how Apple created its impressive moat. How the company is able to charge premium prices and grab staggering gross margins merely by using its brand name.
The Apple brand name is perhaps the company’s best asset as evidenced by the ferocious loyalty of its customers, willing to endure long waits to get their hands on whatever product Apple is rolling out.
Today one of Apple’s greatest strengths is its company-owned and operated ecosystem. Their proprietary formats and products keep users within the Apple family with everything they sell from the devices to the music to the applications to the videos.
In short, Apple maintains its moat because it has been able to keep putting out “gadgets” deemed by the consumer to be more user-friendly and more reliable.
The real threat to Apple comes not from Google, but from Microsoft. While Steve Jobs famously predicted a “Post-PC World” dominated by tablets and interconnected mobile devices, Microsoft sees a “PC-Plus World” where a fully integrated operating system ties everything together, with a hybrid tablet at the core.
The key question here is: Will Microsoft be able to produce reliable products? The company is planning to pay developers to extend their apps, is subsidizing Nokia and has the cash on hand to take substantial losses to breach that Apple moat.