When Apple recently hit the $1 trillion mark, becoming the first public U.S. company to hit that milestone, investors celebrated and pushed its stock price up 9 percent in just two days.
Despite that distinction, though, pundits pointed out that this doesn’t make Apple the most valuable company in the world. That honor would go to Amazon, which in June passed Apple in terms of “enterprise value,” or total operating value, adjusted for equity, debt and cash. It is enterprise value that’s generally considered the true measure of value, not market capitalization.
Still, whether it’s Amazon or Apple and whether you use enterprise value or market capitalization as the standard, when you add Netflix, Microsoft, Alphabet and Facebook to the mix, tech giants as a group are dominating the market. They’ve turned in 99 percent of the S&P 500 returns this year, according to CNBC.
We haven’t seen the likes of this strength since the last dot-com boom in the 1990s, writes Alap Shah, who runs financial research platform Sentieo, in Forbes. Those were the days, as he recalls, when Cisco was poised (yet failed) to become the first trillion-dollar company.
One of the differences between then and now could be the nature of today’s tech leaders and some of the other measures that define value in today’s environment.
In particular, all these tech giants are more than just a group of garden variety technology companies. They’ve become giants by building their value around the relationships they’ve forged with their customer base and with the public generally. It’s more than just an experience they provide. They’ve achieved a level of intimacy with their products and services and overall brand relationships that has driven value as surely as other factors more typically added to the equation.
Brand strength has become a significant – and verifiable – gauge for evaluating investments. As Mario Natarelli, managing partner of brand consultancy firm, MBLM, explains, brands have become value systems, not advertising jingles or logos or static constructs.
As part of their annual Brand Intimacy Report, this year MBLM assessed nearly 400 brands and queried 6,000 customers in a quantitative research study that determined the “brand intimacy” of companies – in other words, measuring the relationships top brands are forging with their customers. With the path to purchase so much more complicated today, there’s a strong correlation between success – sales – and the ability to establish an emotional connection.
Not surprisingly, Apple has done it better than any other brand in MBLM’s study this year. Everyone can guess the reasons why: quality products, ease of use, innovative style and distinctive marketing. But what really fosters intimacy is Apple’s ”rich, seamless ecosystem of devices, software and services…a ‘walled garden that makes each of its products a reason to buy the others,” MBLM’s report explains.
Amazon has been no slouch, either.
The company has dominated the retail industry and has served as a disruptive force pushing the sector’s transformation by showing the impact that forging strong bonds with customers can have on a business. That’s been achieved because Amazon delivers superior service: It’s reliable, anticipatory and it gives value. The way it exceeds expectations keeps it at the head of the pack.
A lot of factors combine to create what’s considered “value” in an enterprise — equity, debt, capital, market capitalization and other factors are the go-to measures for most investment purposes. But a different kind of insight can be gained by looking beyond those “hard” measures to the strength and nature of a business’ customer relationships.
Disclaimer: This content does not necessarily represent the views of IWB.