Scarce and Cornered Resources: Competitive Advantage Lessons from the Fall of Star Wars (Tech Strategy – Daily Article)

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CA9: Scarce or Cornered Resources is a rare and quirky type of competitive advantages. It is a cost and supply advantage. You can see it on the right of my competitive advantages list.

It is rare that a scarce or cornered resource becomes a sustainable competitive advantage. In fact, this is the competitive advantage that I think about the least. However, as resources become increasingly digital, it may become more interesting. So, I’m keeping my eye on it.

An Intro to Scarce or Cornered Resources

For tangible assets, we occasionally see companies with outsized control of an important resource. Or that have unique access to scarce resources. For example, the planet has limited resources so geological resources like oil, Lithium and rare metals can matter.

  • Saudi Arabia and OPEC have historically controlled +70% of the world’s proven oil reserves. And State-owned Saudi Aramco plays a controlling role in this.
  • Similarly, Bolivia, Argentina, and Chile control +70% of the world’s lithium reserves, something that has become increasingly valuable. Although we don’t see 1-2 companies exerting control in this case.

We could also put some types of land in the scarce resource category. Buildings with views on Central Park West are a scarce resource. So are hotels on the bay in Hong Kong and Singapore.

But, to be honest, I generally don’t think too much about this competitive advantage. Such advantages tend to be short-lived. But, as mentioned, it is becoming increasingly interesting in digital – and there is an increasing range of important digital assets. For example:

  • Isn’t user engagement scarce by definition? There are only 24 hours in a day. What about when users are creating lots of user generated content such as in the case of Waze and Wikipedia?
  • What about technology platforms that have cornered developer engagement? Aren’t developers an incredibly important resource?
  • Is control of or access to a complete 360-degree view of consumer behavior a scarce or cornered resource? It certainly appears to be a unique asset held only by a few digital companies.
  • What about high-end semiconductor manufacturing? TSMC controls half of the global market and there is no company even close to replicating their capabilities. When the US government cut Huawei off from this source, the company effectively had to exit a large part of their smartphone business.
  • And 4-5 Silicon Valley firms now have effective control over the information flows (an important resource). These companies are increasingly deciding who and what can be said online. They are now acting in a coordinated fashion and are starting to look like an information cartel, very similar OPEC’s cartel in oil.

Hamilton Helmer, U2 and the Fall of Star Wars

Hamilton Helmer lists “cornered resources” as one of his 7 Powers. He looks for resources that are rare, differentiated and cannot be replicated. And his key question is whether this resource can be transferred or not. The band U2 is an example of this.

U2 has a +40 year history of writing songs and filling stadiums. Four Irish guys writing, performing, and operating as team is definitely a unique resource. They can create valuable intellectual property, sell concert tickets, and generate cash flow pretty much at will. They are rare, valued by customers and cannot be easily copied. And while the music is transferable (the IP can be bought), the group is not.

We can find lots of similar examples of this type of scarce resource in creative endeavors like music, movies and fashion. We can also find it with certain investors who can produce investment returns decade after decade. And you can also find it with certain insurance underwriting teams who consistently outperform. In fact, when valuing such businesses, it is usually all about assessing the management or creative team as the key operating asset.

So, is the scarce resource the people or the intellectual property they produce?

Which brings me to the fall of Star Wars.

Star Wars was arguably the most valuable movie franchise ever created. Owned by Lucasfilm and led by George Lucas, it created movie after movie over thirty years. Fans camped out in front of movie theaters for weeks to see the latest releases. There were also cartoons, books and tons of other content. And they sold toys by the millions and licensed IP to everything from hats to backpacks. I have actually read everyone one of the +100 Star Wars novels. Using my framework, we could put Star Wars under CA6: Proprietary Tech and IP or CA9: Scarce or Cornered Resource.

But in 2012, Lucasfilm and its Star Wars IP was sold to Disney. George Lucas exited and Kathleen Kennedy took over. In just a few short years, she effectively destroyed the franchise. She killed off the iconic characters like Han Solo and Luke Skywalker. She alienated most of the longtime fans. And the 2018, the Star Wars movie Han Solo flopped and became the first Star Wars movie to ever lose money.

Not since the launch of New Coke had a management team so thoroughly destroyed an iconic brand so fast. Disney halted all the Star Wars movies under production. The entire Star Wars Universe was shrunk to one popular television show, the Mandalorian. Note: the creators of the Mandalorian apparently demanded complete independence from Katheen Kennedy and her team.

It turns out Star Wars as a scarce resource was both intellectual property and a U2-like creative team. Disney paid $4B and got the former, but not the latter. Hamilton Helmer describes such creative teams as “brain trusts”. He defines them as teams which can “drive high-potential, persistent differential margins, with operational excellence spanning the gap between potential and actual.”

He says brain trusts (as scarce resources) have five characteristics:

  1. Idiosyncratic but with repeated success over time.
  2. Non–arbitraged. You don’t want to overpay for the asset. Brad Pitt is a valuable resource but if you overpay for his value upfront, you don’t economically benefit as an investor.
  3. Transferable. A resource that cannot be transferred is not as useful. You can move U2 from one record label to another. But if you buy Lucasfilm and don’t get George Lucas, you could lose (which is what happened).
  4. Ongoing. Is there a causal factor for continued differential returns? Pixar went on after Steve Jobs left. Sticky notes were valuable after the inventors left because of patents and trademarks. You need to be able to explain why the value will continue.
  5. Sufficient. The resource must be complete enough to continue producing differential returns, assuming operational excellence.

My List for Scarce or Cornered Resources

We can find companies with scarce or cornered resources as a competitive advantage on the cost and supply side in a couple of areas. My list is:

  • Tangible assets. But these rarely persist.
  • People-based assets, such as brain trusts. But I find these hard to evaluate and predict.
  • Intellectual property. This is certainly a deep well. But I put these in another category.
  • Emerging digital assets and situations. Owning domain names are the simplest example. But connected enterprises and services are increasing and fall under this category.

Ok. That’s it for today – jeff

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Related articles:

From the Concept Library, concepts for this article are:

  • Scarce or Cornered Resource

From the Company Library, companies for this article are:

  • Lucasfilm / Star Wars

Photo by Jeff W on Unsplash

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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