Apple has grown from a tiny home business to a market value of US$2.9trillion (that’s about twice Australia’s GDP), making it the most valuable company in 2022. Understanding this could increase the value of your company, which is important if you are preparing for sale or investment.
The distribution of value for the iPhone in 2010 was:
- 58%: Technology and brand
- 22%: Materials
- 14%: Technology inputs (US, EU, Taiwan, others)
- 4%: Labour, non-China
- 2%: Labour, China
That’s right, according to one analysis, the iPhone derives most of its value from intangible resources and capabilities including distinctive brands and technologies. Another analysis points to Apple’s unique systems and processes that create an innovative culture. Which every way you look at it, however, most of the value comes from Apple’s intangible resources and capabilities.
Apple has succeeded because it has been able to differentiate itself in the marketplace and tightly control its intangible resources. The differentiation and control would quickly erode without Apple’s patents and trademarks, as would Apple’s value. While companies have in the past depended mainly on physical assets, their wealth (like Apple’s) is now driven more by knowledge and information.
Unique intangible resources and capabilities are a major point of differentiation between companies and can protect a company from being no more than just another commodity provider. Patents and trademarks can be powerful intellectual assets because they present a barrier against followers. Multiple studies have shown that technology and manufacturing SMEs with patents and trade marks have significantly higher margins and are more valuable than those without.
Here are the three steps you must take when innovation underpins your livelihood (which is true for everyone):
1. Determine your company’s intellectual asset position.
Around 70% plus of a modern company’s value is in intangible resources and capabilities. Can you account for these, right now? Are these in your annual reports? If not, you’re not getting full value.
Do you know your company’s valuable commercial secrets and how to stop employees walking out the door with them? Do you know what intangible resources and capabilities you need in order to achieve your commercial objectives?
2. Work out a strategy for developing and extracting value from that unique and differentiating 70% of your company’s assets.
Once you have determined your intellectual resource position, you can determine actions to take you from your current to your ideal position. Planning your actions and budget will enable you to obtain significant leverage on your investment.
3. Make your point of differentiation in the market sustainable by protecting intellectual assets, where possible, to stop competitors adopting your innovations.
When appropriately exploited, this will increase your market share and enable you to command higher prices – and who wouldn’t want that?
Protection can include, for example, patenting your important technology, registering your trademarks, documenting your secrets and developing protocols for keeping them secret. Investors greatly value patents and trademarks. You want to grow like Apple, don’t you?
On the other hand, there are some things you shouldn’t do if you want to grow like Apple:
1. Don’t think for a second that protected intellectual assets in the form of patents and trademarks are a cost rather than an investment. This view threatens company value.
Do you really believe your competitors will let you keep your point of differentiation and attractiveness to your customers unless you’re legally protected? Is that how Apple became the biggest company ever? Of course not.
2. Don’t tell others about your innovations until they are secure – and maybe not even then
Telling third parties about your innovation may dramatically lessen your competitive advantage and may even prevent a valid patent being granted to you in many jurisdictions.
Apple doesn’t give away its intangible assets, and neither should you. In some cases, it’s better not to disclose your intangible resources and capabilities so competitors are kept guessing, even if they are protected.
Adding significant value by developing sustainably differentiated intangible resources and capabilities, and leveraging them in the marketplace is not only for Apple: your company can do it too