Physical assets are a known quantity for better and for worse. They intrinsically depreciate. On the other hand, Brands grow over time from word of mouth and other marketing, so long as their final product is at least average.
Is Windows or Android not an asset? Is it not the dominant asset in terms of value, even if manufacturing electronics at scale is larger in physical terms?
No. Tandy (aka Radio Shack), Dell, Compaq, and so forth commoditized PC Hardware.
Microsoft made the OS a commodity, reducing the cost of an OS from thousands of dollars to only $100. Android / iOS have done the same thing except reduced the cost to $0.
The hardware manufacturers don't make as much as the software guys. Because people and habits are tied to the software, not hardware.
Most people didn't care if they had a Dell or a Compaq, as long as it ran Windows.
So in this case: I don't care what hotel I stay in or who rents me a car, as long as I know that through Priceline I'm getting a good deal.
It's the same in travel, where the airlines and hotels are selling commodity products, and the high value is in the brokers people trust to select among the commodities. But the brokers here are also in still competitive positions, because it's still easy for consumers to switch compared to something like an OS or social network.
Marketing people sell value, they don't create it.
To the company and its owners, if my brand allows me to sell an equivalent widget for a higher margin, how is that not value? Just because value can be created or destroyed by a single action doesn't mean that value is somehow less valuable.
To the user, if I derive greater pleasure because I believe I have bought a more valuable product (attributable only to the brand), just because there is an equivalent widget out there, does that somehow discount my pleasure?
What even, is the basis on which, in this hypothetical scenario, we have determined the widgets are equivalent? Surely there is some subjectivity that would be driven by people's opinions, influenced directly or indirectly by brands, in that decision.
Soap bubbles are beautiful but you wouldn't pay money for one because you know how ephemeral they are. The value in brands is the expectation of future revenue that will inure to them. I'm saying that not only is this fragile, if it's destroyed then it's not good for anything else. By contrast, suppose the Fancy Hotel Company goes bankrupt through mismanagement; you still have an actual fancy hotel - an aesthetically pleasing building, comfortable furniture, experienced staff, logistical relationships with suppliers etc. Changing the name on the building to the Cosy Hotel Company would be a sales problem in the short term, but would have zero impact on the actual operation of the hotel itself.
Yes. Let's take a simple example - processors. I'm sure you can think of reasons why some prefer Intel and others prefer AMD, and why those different choices might be valid depending on the users' criteria. But which processors do you think HN runs on?
You probably don't know or care because it makes no functional difference to you. You might still have preferences about the next computer you buy but only insofar as you can imagine it making a quantifiable difference to you.
As a consumer, your contribution to brand value is only as good as your knowledge of what makes a branded offering unique and irreproducible.
But sure, they do help extract higher margins.
Put it this way, suppose the C-suite and the board at Priceline went insane and wiped all their own servers before leaping out of their penthouse windows. It would disrupt the travel industry, but it wouldn't be that difficult to build another price aggregation network - the infrastructure is already there. And a year later, nobody would care.
Consumers aren't nearly as invested in brands as marketing people like to imagine, they're just lazy and stick with whatever works OK. Can you imagine consumers feeling sad about the demise of Priceline or any other major brand? If Geico went out of business I'd feel a little bit of nostalgia for those animated gecko commercials and might reminisce that they were a good company to do business with, but that's about it.
Therefore, we should be looking for industries where connecting buyers to sellers is the big question! (Or owners to leasers, or lenders to borrowers.)
We should also be looking at why apps that are supposed to do this connecting fail.
I guess marketing is at play there.
It's nice to have solidly built furniture, but not everybody cares enough to pay a premium for that. If the demographic you're looking at is "YouTube tech reviewers" then it's especially unsurprising. Those are people who place value on having fancy tech. I wouldn't blame marketing, just a question of limited budgets and personal priorities.
I've seen some pretty cool DIY computer desks, like one where the computer components are spread out and visible over a glass top, or it's hidden away in a cabinet on the side, but it's a comparatively small number of people who care.
That said, if you're capable of producing high quality furniture with expensive materials, with the right marketing I imagine you could make quite a bit. People pay boatloads of money for reclaimed/exotic wood desks with attractive aesthetics.
The only thing easier might be an Alexa app or chat bot or something. Even then people that shop on priceline are probably more cost sensitive etc..
A hotel can have a website where people can directly book a room.
But people want to compare prices, shops around, hence a new form of ... middleman :D
If the hotel offered the lesser rate themselves, they would effectively be pricing their "free" amenities, and they don't want to do that.
Generally they are paying around 20% of the booking fee to the listing service. So in theory the hotel would be able to charge 15% less on their own site and make a larger profit. But if they did they would no longer get listed on the popular sites where people go to easily price compare and then book.
It's turtles all the way down.
- Computing infrastructure
- Domain expertise
- Deals and relationships with business partners
- Mountains of proprietary data, including historical pricing/availability and user behavior.
It's not impossible though:
1. One of the other big tech players could decide to enter this market.
2. Alternatively a site with huge demand could start to feature hotels (airbnb for instance).
3. A technology shift or a shift in the right advertising strategies to create demand could leave room for startups to enter this market.
So there's a big difference still.
Said another. The company technology that powers the whole travel industry is worth less than 10% of just Priceline.
Disclaimer: I work for one of these.
Not true at all, they own the attention of people who would be paying the asset holders. That is (obviously) very valuable.
Great word, hadn't heard that before (or at least forgot it).
Also, Coca-Cola, Nike etc... would disagree with the idea that brands don't last.
What they own is as real as anything a car insurance company owns. It's as real as crypto-currencies. It's as real as Amazon.com's store, which is now 1/2 inventory not owned by Amazon; or eBay for that matter, or any other offline auction service that has ever existed. It's as real as cloud computing.
There are dozens of other common business examples, from the present and past.
However, financial statements don't consider data as something of value, or brand names (unless they are purchased), so the company might be "worth" much more than this.
If you want the lowest prices on all the big hotel chains (Marriott, Hilton, IHG, Choice, Wyndham, Best Western, etc), then use www.roomkey.com I have no idea why they don't advertise it, but their loyalty pricing (you have to be a free member of their rewards system), and in exchange for the discount you get, the hotel doesn't have to pay commissions to Priceline/Expedia/other travel agents.
If you can legitimately find an advertised price lower than the hotel's actual website (roomkey.com is owned by the hotel chains themselves), then you can even get free and deeply discounted nights:
Additionally, comparing hotel pricing does put major pressure on prices, as most travelers know that they want to stay in the most reasonably priced hotel with a certain number of stars.
So to value Priceline at $100B is insanity.
They may be overvalued, however they blatantly are providing an extremely valuable service. And if it were easy to replace or compete with (ie something of low actual value), the airlines etc would have already cut out Priceline and would keep the $2+ billion in annual profit for themselves (they've tried and failed repeatedly to cut out Priceline, which further speaks to its immense value to consumers).
I'm more surprised that you're holding up Tesla as a counter example to fluff valuations given their present valuation versus other car companies with actual immense profit such as GM or BMW.
But then again PE on stocks seem to have been getting higher and higher in this latest tech boom (bubble?).
This is like being surprised that corporations have a higher market cap than the sum of the net worths of its employees; it's not really a sensible thing to compare.
Priceline and others own mindshare and access to a community, and its infrastructure is cheap. Marketplaces and money transmitters are valuable, but eventually will be decentralized as you can see with bitcoin.
Apple and Microsoft build actual stuff. But Tencent, Alibaba, etc. are markeplaces and shipping.
priceline and companies like it sell convenience
therefore priceline and companies like it sell you your time back. Specifically, they are selling back the time to people who derive greater value from doing something other than trying to book tickets cheaply. Middlemen sell you time you'd spend searching in a search space they specialize in.
General Motors produced 10 million cars in 2015 (per Wikipedia). Tesla produced 47,000 so far in 2017.
I understand the stock market is 'forward looking'...but huge difference there.
In a world where there is a expanding numbers of producers/assets and expanding number of consumers (of those assets) coordination (ordering, filtering) can become more valuable. It all depends on what you're integrating over.