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How strong are Airbus, Boeing and Boustead’s economic moat?

I was reading this article in The Edge talking about the days of these 2 monopolizing the markets may be over. It is interesting from the economic moat perspective.

How wide is the economic moat actually for them? In the case of aircraft manufacturing industry it is not the brand or the specific cost advantages. Rather their moat stems from High switching costs.

If you change your fleet of planes to another manufacturer out of these two you are going to acquire a full set of support equipment, services, man power. They may not be readily available. Technologies down to part levels coming from the same manufacturers may not changed much.

Most of all Safety is a high cost.

Changing to a China plane you have to evaluate all these hidden cost.

It still leaves me to wonder whether these small competitors can break their strangle hold.

Boustead, ESRI and ARCGIS

A similar parallel can be drawn to SGX listed Boustead. One of their key profit drivers have been ESRI, which distributes the market leading ARCGIS geo spatial system used in electronic mapping and overlays world wide for the past 30 years.

With the rise of cloud computing, especially Google Map, would this severely weaken ESRI’s economic moat?

It’s the same situation here. Switching costs and Network effect. It is well summed up in this conversation I found in Stack Exchange discussing why people use ArcGIS:

First of all, easy to use. I have been using ArcGIS for almost 7 years now and I can tell you that people love it’s simplicity and how to build simple maps and analysis.

I have been tracking and also using QGIS for almost 3 years now and as other have pointed, QGIS is getting closer on funcionality, but still "ESRI" is printed on peoples mind.

ArcGIS has a solid documentation, large use base and support for old products that most of other companies cannot provide. They have been investing in new technologies and spread of new concepts (which may be something or not – check out GeoDesign).

QGIS is a very strong candidate for a replacement of ArcGIS. There is one specific project, for a municipality here in Brazil (a large north capital) where we were able to stick with QGIS and they seem to be very happy with it. Customizing it is another point, but it doesn’t seem hard – everyone just need to "get used to it".

One point in favor of ESRIs tool is its native cartographic output which is still the best, and looks like it will be for some years.

EDIT explaining the native cartographic output comment: Well, most of GIS softwares nowdays can export to a different format, such as PDF and SVG, to be edited outside the boundaries of GIS scope.

I’ve heard that many many people uses FOSS GIS software to generate the basic layouts of their maps, and then change to something like Inkscape and refine the look and feel of that map.

Natively, ArcGIS has the best cartographic control and output of all. It has extensive labelling features, symbol creation, it’s has many features of a vector graphics software.

Thats what I meant as native cartographic output 😀

 

While I technically cannot actually answer this, since I don’t use ESRI products, I can have a stab at the ". . . but why is it still so popular" question. (This is just my opinion based on discussions over the years with folks much more knowledgeable than me, so I can’t really back it up with facts but it seems to make sense to me).

The major reason is market and mind share. "Most people" know ESRI software, and most people who’ve heard of GIS think of ESRI. That’s just general wisdom in the atmosphere, because of huge numbers of companies and government departments and educational institutions that have deployed ESRI software en masse. Market share is one reason to choose something, but (depending on your business model) it can be far more important to assess the technical match of a product to your needs. (That’s what I think you should be asking questions about btw).

I think many expect something as ‘serious’ as GIS to need to be huge, and so the perception is that it’s expensive, so it’s good, lots of people use it, it must be the best. Since it does cost a lot to invest in it you also won’t hear many argue against it’s cost-effectiveness no matter what they truly feel, since they are committed to a big investment (this is obviously contentious, and is not meant to antagonize people for whom ESRI really is the right choice).

That is changing with more cost-effective solutions from open source and more affordable products (GDAL and QGIS are very widely known these days, and there are many others), but it’s not changing with dyed-in-the-wool ESRI users – partly since it’s people who are brand new to GIS that are using the new tools, not the old-school – and also since the current users will be a much harder market to crack – that’s just not effective for organizations wanting to invest in software that they want lots of new people to use.

This is a good discussion topic. Here’s my take. I learned to use GIS software in a university setting – a university that has a ELA with ESRI, like many do. This brings many users into GIS on ESRI software. Does ESRI have a large market share? Of course. Is it good software? In my opinion, yes. It is well supported, stable, constantly improved, scalable, inter-operable, and has a HUGE user community to go to for support and ideas. I think that most everyday users (and probably corporations for that matter) are going to go with a product that meets the criteria I described above simply because it’s easier for them. The ArcGIS platform is tried, tested, and dependable in the long run.

I work for a medium-size corporation that of course can afford enterprise licensing of a product like ArcGIS. For that matter, ESRI licensing is chump change, as we have other software packages whose ELAs run into the millions of dollars. I also consult on the side, and have a personal license of ArcGIS – ArcView. Why did I spend $1500 on that you might ask? Because my clients all use it and I am in business to provide them solutions using the package that they are also using. Well, that and I honestly like ArcGIS.

Looking past the numbers into the business model

The aircraft manufacturing and geo spatial example here shows good examples why scrutinizing the business aspect should form an important part of your analysis.

They protect the long term profit margins and ensures that cash flow would grow better.

Boustead 3rd quarter 2012 result
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BlackCat

Sunday 19th of February 2012

Hi Drizzt,

I use ESRI products occasionally. I sort of agree about their moat.

I think the second StackOverflow post is correct - market share and mind share. There are many competing products which are technically 'good enough' for basic map production. But we use ESRI because of its brand name and company strength - critical for government clients. None of the free products (like QGIS, postgres) or cheaper products (like Manifold) have support, while ESRI has been dominating the market and providing support for decades. Only other viable competitor in this space is MapInfo, and I simply have not seen or heard of them in Singapore - don't know why. Smaller clients (SMEs) may not care about this so much and go for the cheaper/free products.

I think there is *no* network effect. eg: in times past, you could only use MS-word to read other peoples word documents - therefore everyone had to have MS-Word. Every useful map software (free or commercial) can read/write ESRI's file format.

Regarding the cloud and google maps: I think these are completely different things. Small companies and consumers may use their services (eg: find the fastest way from my pickup to delivery point and show the result on my web page or iphone). But government departments (eg: military or NEA) will still use GIS products to produce/analyze geographic data (eg: 'get me a map showing all homes within 200m of stagnant water'). You cannot do this 'in the cloud'.

Production/analysis of geographic map data is a very specialized and tiny market (compared to the market for MS-Word for example). Only a large company (Google/Microsoft) could wrest this market from ESRI, and it would be a waste of their time. Although I'm wary about any IT products having a 'moat' (http://www.profithunting.blogspot.com/2011/12/stocks-i-dont-like.html), ESRI has the longest and most enduring one I've seen. And I don't see anyone challenging it. I first used their products 15 years ago in university they were the leader even then!

Drizzt

Monday 20th of February 2012

hi black cat! thanks for sharing. i think there is network effect. the schools that train people from the start use eSRI's products to the people getting the certification to the project managers looking for staff. their network is strong because alot of people are living off it.

i am sure boustead's share holders will be happy about this.

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