Microsoft

Brand Equity: Tangible Assets Are A Small Part Today’s Brand Value

~ K. Quesenberry ~ Leave a comment

According to Interbrand Corporation’s Best Global Brands Ranking the value of Microsoft brand was $60.8 billion in 2010. How can the Microsoft brand be worth so much?

Lets start by figuring out what that number means. In the past, one of the undervalued assets of companies was their brand, because they are off-balance-sheet items. Haigh & Knowles, (2004) tell us that today, looking at a typical company like Microsoft, net tangible assets make a small percentage of total value. When comparing brand value to percentage of market capitalization we find that, based on the 2005 Interbrand study, Microsoft’s brand value was $59.9 billion compared to a market capitalization of only $13.2 billion.

So why does the Microsoft brand contribute so much to its value? There has been this value shift from tangible to intangible assets. The tangible assets of Microsoft including land, equipment, inventory, networking, only account for roughly 22% of its value. Especially in a software company like Microsoft, its real value comes in its intangible assets such as patents, distribution rights, customer data bases, brands/sub-brands, and the quality of their workforce and management. Intellectual property rights, trademarks, trade names, patents, and designs protect these intangibles and help make a brand a valuable asset.

Brands like Microsoft establish a level of quality and performance in the minds of individuals and businesses. These satisfied buyers choose to buy the product again. The brand loyalty represents predictability and security for demand. It also makes it very difficult for competitors to enter the market. As the old saying goes, “No one ever got fired for buying IBM.” All the years of marketing and product experience have helped secure a competitive advantage for Microsoft. That’s why there is such a price premium paid for companies like Microsoft. Imagine trying to build a Microsoft from scratch? Even if you were given the 22% in tangibles of equipment and other assets it would be a difficult task. In creating a new software company from scratch that 78% is a high hill to get over.

A good example of how the power and value of Microsoft’s brand created competitive advantage was back in the late 1990’s. Netscape tried to compete with Microsoft by getting into the Internet browser arena quickly while Microsoft underestimated its popularity and potential.

Discovering it made a mistake as Netscape gained prominence, Microsoft used its brand power to squelch Netscape’s threat to its desktop software dominance by pressuring its distributors (PC manufactures) to restrict the distribution and usage of Netscape’s browser. Today Wal-Mart uses its brand power to negotiate, or as some would say demand, lower prices from its supplier.

Do you think the rise of store brands lowered brand value in package goods?

Are Intellectual Property Rights Wrong?

~ K. Quesenberry ~ Leave a comment

What if intellectual property rights did not apply to cyberspace? At first this seems like a ridiculous idea. But you must consider that intellectual property is a relatively new notion. As philosopher Sam Vaknin points out  – in the near past, no one considered knowledge or the fruits of creativity as someone’s property. Texts, discoveries, inventions, works of art and music, all belonged to the community and could be copied freely.

Intellectual property is not scarce like physical property such as a car or house or land. Thomas Jefferson wrote, “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” If someone copies a book you have written, you still have the original book. If you take a car, the owner no longer has it. Even Ayn Rand said, “intellectual property cannot be consumed.” Should we be protecting all this on the Internet or allow people to use it freely as long as they give credit to the original source?

What’s wrong with intellectual property rights? Corporations use intellectual property rights to secure a monopoly on a specific work. That’s why Microsoft fights copyright piracy all over the world. The problem is the poor cannot afford Microsoft products, but Microsoft is the standard and the poor get pushed out creating a gap between the poor and the rich. This IP monopoly pits the interests of companies and their rich investors in direct conflict with the poor and marginalized.

But it doesn’t have to be an all or nothing prospect. Creative Commons is a nonprofit Internet organization created to increase the amount of creativity (cultural, educational, and scientific content) in “the commons” — the body of work that is available to the public for free and legal sharing, use, repurposing, and remixing. Creative Commons was developed to work with existing copywrite law and provide possibilities between full copyright and public domain. “Some rights reserved” copyright allows a free exchange of ideas for the betterment of society while still acknowledging the creator of the works.

With production cost near zero on the Internet, should intellectual property be given up for the good of society? Think about cloud computing such as Google Docs. Google is challenging the old Microsoft way of thinking. Google allows free use of its word processing program in trade for generating traffic and advertising income.

Do intellectual property rights have to be all or nothing?