You know what they say about wrongdoing, right? Follow the money. My father said much the same thing. Look around at rich people and do what they do to make your own fortune. Follow the money. Here we are in the 21st century and such admonitions still ring true. Warren Buffett is one of the world’s richest men.
What stock does he buy? APPL. Apple, Inc. Why? It has to do with what is called stickiness. How does that compare with another great investor, Peter Lynch? His philosophy was simple, too:
- Do your research
- Understand the importance of diversification
- Be patient
- Invest in what you know
How does that simple approach compare to Warren Buffett’s approach to APPL?
Apple has an extraordinary consumer franchise. I see how strong that ecosystem is, to an extraordinary degree… You are very, very, very locked in, at least psychologically and mentally, to the product you are using. iPhone is a very sticky product.
Alright, Apple customer; do you feel locked into Apple’s ecosystem?
The reality is obvious. Somehow or another, every company wants to lock you into their own ecosystem. The grocery store does it with sale items on days when the store is least busy. Why? Because seldom do we venture into a supermarket to buy a single item; we buy more.
iPhone vs. Android? Google has an ecosystem, too, and while it means it’s easy to choose whatever and whichever Android smartphone you want, you can do the same thing while owning an iPhone. Use Google’s ecosystem. But you’re still locked into the stickiness that system creates.
Amazon works the same way. Got Prime?
That makes shopping easier and faster, but does not always result in the best price for what you buy. To make up for that and to entice you to remain within Amazon’s web of stickiness, you also get Prime Video and other services to help ease the pain of the annual price tag. Sure, you can leave Amazon at any time, but what do you lose?
Free shipping is gone. Say goodbye to Music and Video, too.
Companies often talk about building a barrier to entry to keep competitors out of a particular product segment, but those same companies also build a barrier to exit their ecosystem.
What about Microsoft and Google? It’s much the same thing. Google gives customers free applications to use; Chrome spans across platforms. Google Docs, too. Microsoft’s cash cow is Windows and Office and leaving both means you may encounter some pain to buy and learn new applications.
Stickiness is everywhere; from car manufacturers to grocery stores, from gadget makers to employers (health care coverage and benefits help stick employees to a company). Apple just does a better job of creating a sticky ecosystem and Warren Buffett knows that.
Does Buffett use an iPhone? No.
Tim Cook asked me that. Well the answer is just I’m out of touch. But I tell Tim, as long as I haven’t gotten one the market is not saturated. The day I buy one, there is probably nobody left after that.
Maybe we haven’t hit peak iPhone after all.