Why Unique Assets Are A Great Competitive Advantage

Over the past many weeks, we've gone in depth with each of the ways a company can secure durable advantages against their competitors, also known as economic moats. Those ways are:

  • Brand building that allows higher pricing or creates "automatic purchases".
  • Network economics that attract buyers and sellers at the expense of competing networks.
  • Government-imposed regulatory barriers like patents, approvals, or restrictions that legally prevent other companies from competing.
  • Economies of scale that allow a company to sustainably produce products at lower prices and/or out-invest competitors in marketing and R&D.
  • Switching costs where a valuable service is difficult, expensive, and time-consuming for a client to switch away from without disrupting business.

To these we will add the last moat source today: Unique Assets. Let's take a look.

What Is The Unique Assets Moat?

The term "unique assets" is rather vague. In fact, it could really be applied to most of the other moat factors. A strong brand is a unique asset. So is a massive, globe-spanning payment network. So is a key patent for a billion dollar drug.

Those are not what we mean here.

The unique assets moat refers to ownership of a limited, economically valuable resource. Frequently these are natural resources, but can also be an artificial asset that a company has produced that is highly unlikely to be duplicated. The key point is that any competitor cannot just get a loan and gain access to these assets - they are either naturally limited, or extremely time consuming to acquire.

Through ownership of these unique assets, a company has the ability to generate revenues and profits that competitors simply cannot. Although there may be competition that wants to compete in the space, the difficulty in securing the assets needed to do so keeps them out of the industry, protecting incumbents.

That's the high level explanation. Now, let's look at a few real world examples.

They Don't Make New Mountains

One of my favorite examples of the unique assets moat is Vail Resorts (MTN).

Vail owns ski resorts. In fact, it owns some of the best and most popular ski resorts in North America, including Vail Mountain, Breckenridge, Park City, Whistler Blackcomb, and many others.

If you were interested in creating a new ski resort, the barriers to entry are enormous. You can't just find suitable mountains to build on anywhere. A whole host of considerations would have to be taken into account: accessibility, weather, land availability for lodging and resort construction, mountain terrain suitability, distance from competing resorts, etc. There are very few suitable locations for a major ski resort, and you cannot just go out and create one from scratch.

This is compounded by the fact that most available mountain terrain is under the purview of the U.S. Forest Service, which enforces very strict environmental rules, creating a thick layer of REGULATORY BARRIERS to creating a new resort.

It's of little surprise, then, that the last really large new U.S. ski resort was Beaver Creek, opened up way back in 1980. This shows just how difficult and unattractive trying to enter the ski resort business is. Fortunately for Vail, it already owns many of the best mountains in North America, and continues to use this economic moat to consolidate even more mountains under its belt. The company may face other challenges - economic downturns, climate change, changing consumer preferences... and global pandemics... but competition is unlikely to be a major factor in poor business results.

The Gatekeeper For Concerts

The second example of unique assets we'll look at is Live Nation (LYV).

Live Nation is both similar to and different from Vail. On the similar side, it too has location-based unique asset advantages by owning exclusive booking rights to over 200 prestigious concert venues worldwide. This prevents some competition - a competing promoter would be unable to book concerts at these venues - but it isn't insurmountable, as there are a lot more concert venues than ski mountains out there.

Where Live Nation really has an advantage is in its exclusive booking rights. If you want to book Beyonce, U2, Ed Sheeran, or Taylor Swift, you need to work with Live Nation. In fact, the firm owns booking rights for over 500 artists, many of them the top grossing acts in the world. So, if you were looking to compete in the artist booking space, all of these artists are out of play for you, which severely limits your ability to compete. Booking rights for top artists are quite clearly a unique, money-producing asset.

Is It Really Unique, and Is It Really An Asset?

The two questions to ask when unclear if a unique asset moat is in play might sound dumb, but are important to the analysis: is it *really* unique, and is it *really* an asset?

I'll actually go briefly into this kind of analysis with one of the stocks that was difficult to determine: Tripadvisor (TRIP).

Tripadvisor is basically an advertising platform for online travel agencies to sell their available hotel rooms through, as well as for other travel-related companies (restaurants, tour providers, activity companies, experience vendors, etc.) to get bookings from. Tripadvsior earns mostly pay-per-click or pay-per-reservation fees from these customers. Simple.

What brings potential buyers to Tripadvisor is its collection of over 860 million user reviews. Consumers researching a trip will come to Tripadvisor first to find the best hotels and activities as rated by hundreds of other travelers who have been there before. Once they find interesting options, they will proceed to booking through the Tripadvisor platform, and the company makes some money from that.

Do we have a unique asset moat here?

Let's take the questions backwards. First question then is: is it *really* an asset? In this case, it clearly is. The review database is the sole reason for travelers to visit Tripadvisor - otherwise, why would they go there at all? Tripadvisor's ad and reservation fees are almost solely driven by attracting visitors through its review database. Definitively, that database is an economic asset.

So then we move to the second, more difficult question: is it *really* unique? There are plenty of other review databases for hotels and experiences. OTA Booking.com (BKNG) itself has hundreds to thousands of reviews on most popular hotels, as does Expedia (EXPE) and even search providers like Google (GOOGL). Restaurant and experience reviews are a little more difficult to find, but can easily be located on sites like Yelp (YELP) or OpenTable (owned by BKNG).

Without question, Tripadvisor has *more* reviews, and in many cases more detailed reviews, than these competitors. But the fact of the matter is that most travelers are just looking for a "big picture" view - is it clean, is there parking, how are the facilities, etc. Whether a hotel has 200 or 2,000 reviews isn't particularly important, as nobody is going to sit there and read every review. An aggregate rating from 200 reviews is likely to be about as valuable as an aggregate rating from 2,000.

Given this, we don't really think Tripadvisor's review database constitutes a strong unique asset moat, even though it may appear so at first glance. Many of these other competitors have shown just how easy it is to aggregate large numbers of reviews quite quickly, meaning it is not unique at all.

Disclaimer: The content is provided by Alexander Online Properties LLC (AOP LLC) for informational purposes only. The material should not be considered as investment advice or used as the basis ...

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Gil Richards 4 years ago Member's comment

Great read, highly recommended.