The Economics of a Toll Bridge
Buffett tells us that the fundamental economics of a toll bridge are excellent. However, this post is not about a toll bridge. Rather, it’s about the “functional equivalents” of a toll bridge.
Now, apart from the reasons Buffett talked about, what are the other reasons that make a toll bridge a very good business model?
- There is usually no alternative. People who have to move from A to B, have to use it. The owner of the toll bridge won’t let you through unless you pay the toll. That’s the key phrase: pay the toll. Keep this phrase in mind because we will need it later.
- Even if there is an alternative, people still prefer to use the toll bridge. That’s because in the mind of the user, it does not make sense to use the alternative. Now there can be all kinds of reasons why people prefer to use a toll bridge instead of an alternative. For example, the alternative may be too far, too crowded, too risky (crime-ridden) or too expensive. There may be other reasons as well but the key thing to remember is that the preference is in the mind of the user. Keep this phrase in mind too because we will need it later.
What really happens on a toll bridge?
Now let’s think about what really happens on a toll bridge. If you stand at a vantage point high above the bridge, what do you see? Well, you see movement. You see traffic. And you see the toll barrier, i.e. the gateway. There has to be a gateway owned by someone and used by someone else to pass through. Vehicles passing through have to pay a toll. The toll keeper collects the money and opens the gate. Most of his effort came in making the toll bridge. Now, all he does is open the gate and collect the toll.
Now let’s see what we have. We have several key words or phrases to remember:
- Pay the Toll
- In the Mind of the User
These terms constitute a “bridge” which will connect our physical toll bridge to the metaphorical one.
Toll Bridge is a metaphor
Do these terms remind you of something other than a physical toll bridge? Think about it for a while. What other business models require customers to pay the toll to use something that has no alternative in the mind of the users — something that involves movement of traffic and where the owner of the metaphorical toll bridge is the owner of a gateway?
I am a Tree
In Orhan Pamuk’s best-loved novel “My Name is Red,” a chapter (“I am a Tree”) ends with this beautiful quote.
I thank Allah that I, the humble tree before you, have not been drawn with such intent. And not because I fear that if I’d been thus depicted all the dogs in Istanbul would assume I was a real tree and piss on me: I don’t want to be a tree, I want to be its meaning.
In the spirit of Orhan Pamuk’s metaphorical tree, our toll bridge is saying
I don’t want to be a toll bridge, I want to be its meaning.
Find other “toll bridges.” Here is a hint.
Post your thoughts. I will come back to finish this…
I Don’t Want to be a Toll Bridge, I want to be its meaning
All right then. I have read your responses many of which were excellent!
It’s been such a long time. It feels good to be recognised at last. I am overwhelmed. You’ve figured out so many manifestations of me.
You spotted me in payment gateways like VISA and MASTERCARD. Billions of transactions go through me everyday.
You saw me in GOOGLE where advertisers pay me to make you discover them when you search for something that’s related to them. I am the gateway in the virtual world through which you end up going from where you are to where my customers want you to be.
In an earlier avatar, I used to be owned by newspaper and television tycoons. I was the gateway through which advertisers reached consumers but when GOOGLE arrived, I moved to greener pastures. As they say, the medium is the gateway.
You located me in the servers of the dominant stock (NSE) and commodity (MCX) exchanges, as well as transaction exchanges for second hand goods (EBAY). I am the gateway which allows billions of transactions to happen everyday and my owners take a cut every time a trade occurs.
You unearthed me in networks of gas pipelines (GAIL), electricity cables (POWERGRID). I am the gateway internet companies (BHARTI) use to make you pay for reading this. I am the network you use when you call your sweetheart or send him or her a gift (DHL).
Every year you notice millions of excited children rushing past me just to be close to a fictional character called Mickey Mouse.
Movie producers go through me to display their movies to you. Your iPhone has more than 50 apps bought from me — the iTunes store. Thousands of app writers pay me the toll to enable them to sell their apps to you. Hundreds of vendors use me — the amazon.com storefront — to sell their wares to you. They pay me a nice commission too, every time you buy.
If you are a company and you want to raise capital, you better go through me. I am the influential investment banker. I am the dominant credit rater. I can reduce your cost of capital. And I will collect my toll.
You found me in Religion too. I am the temple you give money to. Inside your mind, I am the
stairgateway to heaven.
You may think of me as evil, but look I am just a gateway who’s doing its job. You paid a bribe to a toll-keeper babu to move that environmental clearance file to that senior officer who has his own toll collector just outside her office. Yes, I know I am in trouble because of my friendship with a high-profile company. Arvind says I am its gateway for getting things done. Am I? I’ll leave that judgment to you.
So you see, I’ve been around. And I am awesome. But under what conditions do I become truly awesome? That happens if:
- I live forever;
- I am unregulated;
- I don’t cost too much to maintain;
- I hugely dominate my markets, leaving virtually nothing for my next competitor because I am the winner who gets to keep all; and
- I am insanely profitable. The cash just keeps on rolling in, year after year after year. You only have to look at the tummy of a typical priest in a revered temple to see what I mean.
Now you know the criteria. But beware! There are many masqueraders out there pretending to be me. Why, only yesterday a brand was posing in front of you as me! Imposter!
Didn’t you know I don’t cost much to maintain? You don’t have to spend a fortune to take care of me. That’s not what happens with big brands. Their owners have to spend fortunes
investing in maintaining them — billions and billions of dollars every year. Brands are far more demanding than me. I don’t ask for much at all. My needs are few and far between. Just keep me in good shape by spending a little here and a little there and I will keep you happy year after year. When you think of me, think Vatican, not Coca-Cola.
There are some tiny toll bridges out there who aspire to be me one day. If you spot them early, and own them before they become big like me, you could become rich like me.
I can be yours, but first you’ll have to find me.
77 thoughts on “I Don’t Want to be a Toll Bridge, I Want to be Its Meaning”
Could think of themes of companies like
1. Various service providers like internet, television, electricity, gas, telephone which involve all the keywords i.e. movement of data/essentials (traffic) through cable lines connected to the house (gateway), pay the toll (monthly bill)…
2. Companies which earn revenues in the form of tickets like amusement parks, theatres, stadiums, etc. where there is movement of people (traffic) into the place, gateway where people pay for the ticket (toll)
3. Companies which are scalable i.e. which dont require much expenditure for increasing revenues/ traffic like internet companies, film distribution companies, e-book publishing companies, etc..where there is movement of content (traffic) from one place to other, pay the toll for accessing the content…
Partly right Ramachandra but let’s not over-fit the metaphor. There has to be some movement of traffic. That traffic could be people, freight, data (bandwidth), money (payment gateways like master card and visa), transactions (NSE, MCX), search terms (google). But mostly I agree with your thinking.
1)Arshiya International : FTWZ
2)Dish TV: Economic moat of high Switching Cost
A widely used and robust search engine!!!!
health care in general, you cant do with out it,
schools, you dont move them around
tooth paste, u use only one
Google, Facebook come immediately to mind. Also, credit cards (VISA, Mastercard, Amex) to a great extent.
> rating agencies – ICRA / Crisil
> stock exchanges – NSE / MCX / BSE
> companies like GAIL (that own pipeline networks across the country),
> container corporation of India (though its increasingly losing that adv)
> exhibition centre owners, particularly, if its only one of the few around – NESCO
Government licensing is the classic toll bridge imposed by those in power.
That’s an excellent example and it HAS become a business model too. The movement of files from one stage of approval to another, with toll collectors at every gate…
It is also the reason I think Aadhar is just a wonderful project which is going to dis-intermediate a number of gatekeepers.
Abhay, you have an awesome mind. Fantastic thinking.
1. Cable/Dish TV operator,
2. Gas/Oil Pipeline operator,
I think these two operate in the same way as a toll bridge, once the cables or pipelines are laid, the owner has very little maintenance cost.
3. Google. (This might be wrong)
Though we don’t have to pay for using it, In the mind of user their is no better option, their is movement & traffic, and google is a gateway to many sites.)
Dominant Search Engine – Google
Who pays the toll – online advertiser
Visa & Master Card
Also Visa / Mastercard ..
1) You have to pay whenever you swipe yor card
2) Duopoly (no other alternative)
3) High mind share
4) Transaction (traffic) based
The toll bridge mentioned in the hint could meet its reckoning in the future according to the article here http://www.cnbc.com/id/49477730.
That may be true Rajnish. All toll bridges are not equally robust. The ones based on technology appear to be very solid and sometimes they are, but its very difficult to predict how enduring they are. That’s a key reason why Buffett and Munger have mostly kept out of tech even though they recognize the toll bridge characteristics of google and microsoft.
Are businesses with high licensing/royalty revenues equivalent to toll bridges? The company creates a technology. Other companies that need this technology and don’t have any other alternative pay royalty costs for using that technology. Something like ARM does. Although, unlike a toll bridge ARM has to continuously invest in R&D
I guess Google is a financial equivalent.. wherein advertisers pay the toll, we see the traffic & movement & huge mind share.
I will add Microsoft to it.. product created once & used ever & ever.
Then will add NSE (for Equities) & MCX (for commodities) to it.
If I am not wrong, Pat Dorsey’s Network Effect falls under Buffett’s Toll Bridge, Sir.
Jatin, you’re on the right track. The reason I used the term “in the mind of the user.” The idea was to show that there may be a reason why people use a certain gateway and not the others and that reason exits in the mind of the user. Network effect (derived from Social Proof) is that reason. The value of a network depends on its popularity and the owners of that network stand in the shoes of the owner of a toll bridge.
Visa and Mastercard
1. Power Grid corporation (they have laid down the lines, and power companies need to pay toll every time they want to use it)
2. IL&FS Invest managers (Once they collect the fund, one need to pay management fees regularly, people think they are better at managing money, though they may not be)
3. Credit rating agency (Crisil, ICRA)
4. Stock exchanges (NSE, MCX)
5. Gas pipelines companies
6. Though because of irrational competition sometimes stock brokers lose their advantage, but otherwise I think even contain some though not all the features of a toll bridge.
Schools, colleges and universities are also toll bridges. They are not necessary to be successful in life but the credentials from are required for a number of jobs such as government posts.
That’s good Abhay. Is IIMA a toll bridge?
Not an important one. If people want to go to a top consultancy or investment bank, it will provide the shortest route but there are alternatives.
However, ICFAI is a better toll bridge. Professional associations such as lawyer’s bars, MCI are much more prominent.
Ok, so we some very good insights about the toll bridge metaphor. Now what general characteristics would make a metaphorical toll bridge an exceptional business? What are we looking for when we want a really awesome toll bridge? To answer this question, do not think of a specific business. Rather, think of the list of GENERAL CHARACTERISTICS you would want the “bridge” to possess.
Let’s move from SPECIFIC to the GENERAL now and see where we go.
No alternate routes or substitute should exist. I.e. no parallel bridges. Lack of regulation on toll prices would help improve returns.
I think an important characteristic would be low cost for the service vs its significantly higher perceived and/or tangible & useful value for the user.
1) Monopoly + Inelastic Demand
3) Unlimited capacity
4) if 3 is not possible – Scalability at Reducing Capital Cost
5) Demand > Supply /Capacity
6) Reducing Incremental Cost of Sales or Zero Incremental Cost of Sale
7) Delinked to political Issues
Good points Amit but are all absolutely necessary? Here’s my list. Notice how I make it. I will pick the best attributes and leave out the worst ones of some the toll bridges discussed here.
1. Very long term ones – perpetual ones would be best – that rules out tech based toll bridges because one can’t be sure about the durability of tech bridges. Google dislodged Yahoo.
2. Unregulated – there should be no limit on pricing power. Will rule out GAIL and other regulated monopolies
3. Low maintenance capex – you really want something that does not cost a lot to maintain. So if the bridge it has to be replaced every few years it’s not that good. Again technology based bridges are dangerous.
4. Winner takes all attributes – you want the toll bridge to take a huge share of the market – e.g. NSE commands more than 95% of all F&O volume thanks to network effects. This winner takes all effect could be caused by a first mover advantage but not always. Google moved into search later but now controls a huge part of the search market.
5. Very high traffic movement – you want to see a lot of movement of atoms – google search, gas molecules (GAIL), high frequency trades (NSE), payment gateways (Mastercard, VISA)
6. It has to be insanely profitable. Again google comes to mind.
Is Inflationary economy a presumption in All these attributes?
Ebay, Amazon, IRCTC, Mumbai Local Trains, Facebook may be and since I am the father of a small boy I would say Ben 10, Angry Birds and Chota Bheem as well cause anything I buy for him has to have a logo of these cartoon characters 🙂
Vivek, don’t mix moats with toll bridges. All great toll bridges are moats but all moats are not toll bridges. Where is “traffic movement” in Chota Bheem? 🙂
Businesses that :
-create brand consciousness and therefore loyalty amongst consumers
-have high capital productivity implying a need for no or very limited capex to increase sales (traffic)
-potentially have very large market size
I can think of Visa/Master-card payment channel as one such toll bridge business.
– There aren’t many other alternatives available. Any payment that we do (online or retail outlet) is channeled through Visa/Master Card.
– Every transaction earns Visa a fee, which is like toll.
– The transactions are huge in number and always happening every second. (constant movement of traffic) – Sun never sets in this business (24X7)
– The gateway are those cc swiping machines and online gateways that process the payments.
Can we consider visa charges before entering a country as a toll bridge?
Characteristics of an awesome toll bridge:
1. High frequency of usage
2. No or little maintenance cost
3. Technological advancements should not make the bridge obsolete..atleast the probability of such technological advancements should be low
4. Bridge should be useful to a huge amount of population…The higher the better…
Very good points Ramachandra.
Business of travelport – a GDS, also resembles lot of characteristics of a toll bridge biz. Model. Rather it could be a greater Roi business.
GDS is the only highly profitable business in the whole airline business value chain.
Dear sir , please give your valuable insights on this.
P.s: commenting fr the first time on you blog. Regular reader of your blog and lectures. The learning from your blogs and teachings has really helped me a lot in my research job. Thank you.
http://www.economist.com/node/21560866 – why gds are profitable
1 . stickiness : Buffet often describes moats as presence in the ‘mind of the user’ while explaining blue chip stamps and coke
2 . the toll should preferably be of a minor but indispensable to the user of the bridge
3 . the customer base should increase with time
4 . the gatekeepers should make the gateway harder to dislodge with time .(like kejriwal is accusing parties of having hands in gloves)
Are Micro Finance Institutions, especially before the Andhra Pradesh regulations, an example of a Toll Bridge?..there was no alternative to them and every needy person had to pay the insanely high interest rates for access to credit (move from A to B).
One of they key attributes of a powerful toll model is a huge entry barrier. If technology had entry barriers Google wouldn’t have trumped Yahoo so easily. Similarly while an NSE might look like a strong toll, the entry of MCX SX has already led to severe price wars and cut down on NSE’s pricing power drastically.Similarly an IIMA might not remain a strong toll if foreign universities are allowed to set shop in India (thereby lowering the entry barriers).
The two brilliant examples by Abhay viz Government licensing and educational bodies like ICFAI are strong tolls because theoretically the entry barriers are infinite here.
So in my view its entry barriers that determines/leads to all other characteristics of a durable and profitable toll.
Educational Bodies like ICFAI couldn’t be a toll because by such bodies are not for profit equivalent to a regulator in any industry ?
ICFAI could be a non profit entity but the CA community as a whole is not. ICFAI is a toll because they control the entry of how many people can become CAs every year. Since they control it and ensure very few get the coveted degree every year, the entire CA community gets to enjoy scarcity premium and in turn tremendous pricing power. Ever met a CA who is not rich? 🙂
Well..some of the simple examples that come to mind..
All these have the 5 characteristics-
1. Pay the Toll – All these items are bought by consumer.
2.In the Mind of the User – In the mind of users Gillette is synonymous to razors,Colgate is synonymous toothpaste,Maggie is synonymous Noodles
3.Movement – they move from supermarkets to individual homes everyday.
4.Traffic – you can see traffic when people are paying for these items at supermarket.
5.Gateway: I can see supermarket cash counters as gateways.
1.Although there are other routes(products) available consumers are sticking with the same route(products) for many years.
2. Majority of the investment is made is made in first few years in building the road.Similarly majority of investment is made in building the brand for the first few years.
Companies Warren Buffet has been investing into like
1. Dominant newspaper circulating Co. in the city.
2. Major Insurance Company. Like LIC having huge social effect.
What about airports?
They do follow some of the points mentioned about bridges..
1. They have a monopoly over the air traffic in a city and this advantage can be seen as near perpetual
2. They have multiple sources of fee income in terms of the passengers that pass through and pay for the services availed in the airport and of course the planes that have to pay landing fees
3. The traffic volumes for big cities is very high
4. I am not sure about the degree of regulation outside of India
5. Also I believe that maintenance costs must be relatively high
But I guess the privately operated airports in the world must have high earning
need to do some research to confirm some of the points but these are my initial thoughts
I would think of airports, ports, and train stations as toll bridges – high frequency usage, in the mind of the consumer when traveling or shipping something (and usually no alternative to it), winner, naturally, takes it all. And generally, all industries that can be characterized as natural monopolies.
Also, what Apple created with iTunes is the functional equivalent of a toll bridge with very low maintenance cost, high frequency, and a perception as the only alternative for downloading music for many people (although it’s technology and might not last).
I’m not sure about examples that simply can be described by having created a lock-in effect such as Nespresso (in the mind of the consumer, high frequency, there are only so many ways to make coffee so no immediate threat of new technology). However, it’s not a platform where people have to pass through but a mass-market product – good coffee – which people want to have. The bridge itself might be Nespresso’s exclusive brand image and brand promise + the cheap machine, the toll would be the capsules.
I could relate this to CRICIL
1. Pay the toll: Get your IPO rated first and then allowed to raise capital (sebi Guidelines). This is in benefit to end user so not going to change any time soon, there is element of perpetuity.
2. Mind of user: There is no other alternative, there are other credit rating agencies for sure, but whether their ratings are accepted by public in general.
3. Movement: Come get yourself rated and go.
4. Traffic: In emerging economies, there is lot more activities to raise capital. Loan seekers also require credit ratings. For sure it is going to increase.
5. Gateway: The clearance to raise capital or borrow money.
In addition to this it does not require additional capital to run the business. In inflationary market they have invested at lower rupee and earn fruits at higher. The core competency is in methodology being followed. It will be rare to get technology bundled services which require financial and statistical acumen.
I woke up and saw this mail from an ex-student. He wishes to remain anonymous.
I am not posting on the blog because it may be a bit offensive to some and I mean no offense/disrespect.
How about temples and other religious places? Places like Tirupati Balaji, Siddhi Vinayak temple, Vaishnodevi shrine to name a few.
They may not be classified as a business but they make a lot of money for sure. They have virtually all the characteristics that you
In the mind
Pay the toll
Unregulated (No chance of regulation here)
Winner takes all
Very high traffic movement
END OF MAIL
Of all the ideas that have been put up till now, don’t you think this one ranks among the top?
The franchise is in the mind. Devotees pay the toll happily (huge cash/jewellery inflows everyday), huge traffic movement and extra heavy traffic on certain days of the year causing congestion and queues, unregulated (as in no limit to how much someone wants to pay and is willing to pay – you wont see people paying more than the specified toll rate on a physical toll bridge). Extremely low maintenance capex. Winner takes all- all of the classic attributes of network effect are present. Finally, they are perpetuities with built in inflation hedges, isn’t it?
The priests are toll keepers too. When I went to Puri temple many years ago, a corrupt priest made me pay him before letting me through the gate to the deity. It was a very annoying experience. The thought that came to mind at that time was here is one “barbarian at the (toll) gate.”
Wonderful example. The impossibility of regulation in the future along with all the other characteristics truly make a killer combination
Yes, and it is perpetual which is hard to find in businesses.
marriage halls…especially in a crowded city/town where a new hall cant come up easily..
1. Customers pay advance
2. Significant pricing power is there…as it is a one big event in their life
3. Re-pricing can be done with a new customer
4. They vacate the place immediately after the marriage….a problem that is faced in commercial buildings..where sometimes the occupant does not vacate immediately
I think DTH has become toll bridge after the recent regulation by the government making it mandatory to install it.
Coca-Cola? They built up the recipe over 100 years ago and bought share of mind over many decades of advertising in old dollars. People often like the taste of Pepsi better (per the taste challenges), but still buy KO.
When people buy a Coke, they are also buying an addictive product that chemically and mentally gives them happiness (often, due to previously mentioned ads for share of mind) so there are few alternatives. Since it is a consumable, the average Coke drinker keeps buying.
There are a lot of other companies that this could be applied to as well.
– App Stores / Amazon stores
Anything sold there Apple/Google/Amazon gets say 30% cut and app stores are a near monopoly
– Any kind of renting/leasing
– Advertisement model . Channel is the toll bridge.
Following may not exactly match toll model but
– Sports Bodies like BCCI / IPL franchise
(zero cash investment but investors pay huge amount for owning IPL teams and these bodies get huge money as a portion)
– Time Share facilities
People pay huge money upfront for memberships. Plus they also pay yearly maintenance fees
1. Coca Cola: is the biggest toll-bridge operation in the world. Small ticket item flies below the mental radar of resistance to spending.. ( You wouldn’t think that much while spending Rs 10 as compared to spending Rs 1000). Strong brand is associated with happiness (Smiling Good Looking people), heroics(Olympics / Sports). Low cost of production (The company is mostly just producing the formula)… High barriers to entry…Etc Etc..It has all the characteristics, I can think of 20 more.. (No wonder Buffett owns 10%)
2. ITC:: Meets the majority of the requirements. Its in the mind of the user (Sometimes permanently). Users pay a price to use their product out of choice and any other just won’t do. The company has Pricing Power (Regular excise tax increase are simply passed on to users but it does not deter buyers). Movement: You may ban smoking in public places, people will simply step outside and smoke (I swear, many of my friends find it hard to take a shit in the morning without getting a hit. No doubt, it is a disgusting habit and has serious health issues associated with it. I’d be the happiest if all my smoker friends quit today, but the question is whether or not it has a Toll Bridge fundamental.
1. I live forever. Once a Cie builds its architecture with SAP it’s almost impossible to change to another system. It’s software that behaves like the blood vessels of a body.
2. I am unregulated. No laws about how to build a software platform.
3. I don’t cost too much to maintain. SAP is like a set of rules. There’s no production of anything, but in the mind of the users.
4. I am a winner who gets to keep all! I see a flaw here. The consulting business for SAP is highly profitable. It seems SAP can do a better job by keeping this consulting business closer to its chest. Now outside parties have nice contracts for consulting etc, while SAP should maybe keep this part of the pie for itself.
5.I am insanely profitable. Margins are high. Gross margin above 70% ; net margin around 20%. Updates and maintenance.
Power Grid – High Gross margins,infrastructure all laid down..however not sure of government regulations..
The temple example is exactly depicted in the recent hit movie – Oh my god.
Prof…Blockbuster drugs is one example which covers all generic attributes, just that it has a short life …
sir ,as most of the answers are already done , my some inputs eagerly waiting for inputs
1- in terms of hospitals ( already constructed ) keeping in align with scarcity of resources and lots of approvals -civil ,health , environmental
2-I am not sure whether retail can be there -as it needs to burn lot of money for buying land and constructions , approvals -margins does not support that
3-as it needs to Unregulated in terms of pricing so power/utility companies can not be functional equivalent of Toll Bridges-they can be profitable but not insanely
4-Winner who gets to keep all – can only remind me of Coal India -monopoly for India overall coal requirements
5-Cost dont much to maintain so it means very asset friendly company -telecom can not be same as being an engineering with needing more and more bandwidth needed ( data) capex is too high-i can vouch for same as part of engg ,similar for textile , cement and all commodities companies-sugar
6-live forever-banks can be same -sbi , pnb with so many branches in all location -meaty profit margins -almost monopoly in small cities where private banks dont dare to enter -but they are already priced so I am not sure
7-cant think of more , need to read more to study the correlation of business models with Toll Bridge
[…] I Don’t Want To Be A Toll Bridge, I Want To Be Its Meaning. This is a very interesting article from the Fundoo Professor. This is about Buffet’s metaphor about how he wants to invest in toll bridges, pay special attention to the discussion in the comments section as well. […]
As pointed out religion seems to be the ultimate toll ( it takes lot of time to displace say hundreds or even thousands of years with people not only ready to pay toll in terms of time( offering prayers etc) and money but even life. Second to that comes the idea of a nation once established becomes a toll too ( can not imagine some one laying down their life for say Coke but for their country many do) with the established elite setting the agenda ( starting from their fave economic model, taxes to rewriting history ) next come companies and the usual suspects here are the co’s which depend on my habits that are tough to change like smoking ( a great toll since some one pays to give him something that is definitely proven to be detrimental to him, daily)
Am late to this party but:
>Pre-school chains – Treehouse; if you are in that locality, you don’t wanna send your kid too far
>Schools – same reason; once a school becomes popular, it can price itself higher, parents create a ruckus one year but dd/sy usually works in the schools’ favour
>Product Developers like Persistent Systems, Cisco made its Quad with them, difficult for Cisco to leave Persistent now
>DRG – Difficult for pharma researchers to not avail of DRG reports
and yes, temples, hospitals, rating agencies, google in addition to drug dealers and cherry coke/ dr. pepper retailers 😛
Tata Salt is one I can think of fits in here with 64% market share*
Common Salt is Perpetual, nobody has been able to cook food without it & wont ever be able to do. It is used in every house hold, irrespective of income levels.
Now Lets try if it fits into the “Meaning of Toll Bridge”
a. The first attribute I would like to highlight is In the Mind of the User. Sudh Namak, Annapurna are alternative but didn’t find it anywhere in neighboring kirana stores (I live in Pune). Seems households have been using Tata Salt & don’t want to take risk with alternatives as salt is very sensitive to taste.
b. Pay the toll. It is not available for free & the price has been rising with inflation. Also since Tata Salt contains iodine & Govt. historically has been stressing through advertisements to use iodinized Salt, it has an advantage non-branded products. The price is also not high enough to pinch the pockets of most households; hence it is found in every kitchen.
c. Movement & Traffic is obvious as it gets used everyday & with rising population, the traffic is always increasing, The best part is, the movement & traffic is irreversible.
d. I googled about regulation in Salt industry but couldn’t find much information. The salt industry is delicensed & some govt. bodies are responsible for guidelines etc but didn’t find anything on price control or government interference. The maximum links were related to Dandi March which is history.
e. Again Tata Salt advertises very infrequently & the raw material is available in abundance as it is linked to pans and mines around Sea. Meaning it requires very low maintenance.
f. The distribution network is like the asset created at historical cost with would be difficult to replicate under current market conditions.
g. Every cost rise in any aspect can be easily passed on to the consumers as there are few alternatives & the base price is very low. So its fits well into the high cash low maintenance business.
h. Also, cannot think of any way in with technology can impact the business.
Rest my case.
(* FY 11/12 Annual Report).
Gateway Distriparks Ltd. (Logistics)
Meets some criteria BUT no monopolistic biz and alternate avenues available etc.
(Am just looking at stocks available and not with ideas/ventures/biz which we cannot invest in i.e. like NSE, Tata Salt, etc)
Even PowerGrid can have alternates / competition etc …
Just thinking aloud – a beginner so maybe not totally right too 🙂
NHPC maybe … like say once the setup of a power project is complete – then its like a toll bridge .. though payment collections would be on credit too imo and govt regulations etc do apply as it is completely govt enterprise et al.
Though prettly late in joining the party, but “its better late than never”…
In my humble opinion, Solar energy projects can act as functional equivalent for “Toll bridge” as it has got all the characteristics of a toll bridge :
>>Installed at today’s cost and benefits reaped in future years at inflation adjusted rates (assumed that electricity sold to 3rd party for increasing revenues y-o-y basis)
1) Pay the Toll: Since electricity is one of the basic need for mankind and with the fact that still approx 60% of India is deprived of electricity, and rapid industrialisation has led to huge gap in demand-supply figures. So, in order to keep the country’s growth momentum intact, the electricity demand will sustain and for the purpose Government is signing long term Power Purchase Agreement with the solar power project at high rate (As per Gujarat Solar Policy 2009, its Rs. 15/- for first 12 years and then Rs. 5/- for future years). So, Government is paying the toll to get access to the electricity. One can also sell the power through 3rd party sales, to enjoy the benefits of increase in revenue on y-o-y basis. 1st point “Check”.
2) Mind of the user: In a solar project, the underlying product is electricity and as we all would agree, there is no alternative to electricity. We cant imagine this world today without electricity. So , I guess, 2nd Point “Check”
3) Movement : In a solar project, there is continuous movement of electricity or more specifically Electrons ( pardon me if I am wrong, and blame my commerce background for it) from solar panels to Grid and then to the end user. Also, since there are no viable technology available which can ensure the storage of power at large scale, so this makes the movement inevitable. Whatever energy generated, has to be transmitted. I agree that there are transmission losses, but still majority of current has movement. So, 3rd point “check”.
4) Traffic : As discussed above, since there is no viable source of large electricity storage, all the electric current has to be transmitted. So, therotically , there is no reduction in traffic movement as such over the period. There can be a fluctuation in Capacity Utillization but still it will generate electricity for atleast 10 hours a day generating healthy traffic of electric current over its useful life of say 30 years. So, 4th point “Check”
5) Gateway : Gateway can be referred to as the junction point where two important ends meet. In effect, it is the passage which charges you to move from one point to other. Though I can’t term solar project directly as a gateway like that of Internet, telecom companies or Power Dis-com, but indirectly it act as the reverse gateway between the buyer’s demand for electricity and the suppliers urge to generate income. In order to source the electricity, the government is paying additional tarriff to solar projects for a considerable time frame. So, its upto one’s own discretion whether to say, 5th point “Check”.
The Mumbai Railways..because of its affordability and time saving
Mr. Bakshi , at the risk of sounding stupid …why don’t you like a physical toll bridge? (assuming that’s what your trying to imply)
Wayne, I love the business model of physical toll bridges but felt that that there is more to the idea than in its physical form… 🙂
In the past, I have covered the case of Noida Toll Bridge company in my classes.
Prof , i’ve been reading up on moats recently and that’s how i stumbled on noida toll.. 🙂
few queries… is Delhi metro the shark that’s eventually is going to gobble its piranhas when it hits full capacity? ..and is it just a graham style play to Rs.67
would love your insights on this one.. cheers !
[…]  Professor Bakshi did a great job expanding upon the toll bridge metaphor here: https://fundooprofessor.wordpress.com/2012/10/21/toll-bridge-meaning/ […]
Another indicator of a toll-bridge business is little equity, or possibly negative equity in a profitable business. For example, those with highly predictable cash flows that lever up to repurchase stock. Examples: Dun&Bradstreet, Western Union, DirectTV.
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