Let's take a quick look at the characteristics separating these two classes of enterprise.
An economic franchise arises from a product or service that:Technology is a "winner takes all" market. In Buffet's terms, each segment has a dominant franchise and the rest of the field is scrambling to money as businesses.
(1) is needed or desired;
(2) is thought by its customers to have no close substitute and;
(3) is not subject to price regulation.
The existence of all three conditions will be demonstrated by a company's ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage.
In contrast, "a business" earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. With superior management, a company may maintain its status as a low-cost operator for a much longer time, but even then unceasingly faces the possibility of competitive attack. And a business, unlike a franchise, can be killed by poor management.
Ad-supported search - Google.
Mobile devices - Apple.
Mobile silicon - ARM, Qualcomm.
Social Networking - Facebook.
PCs - Microsoft (sw), Intel (hw).
Online retail - Amazon.
Enterprise IT services - IBM.
Enterprise data services - Oracle.
Yahoo seems to be the kind of franchise that even inept managers cannot kill.
Anything I missed?
tags: business,model, investment, technology