|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Insight Into Dun & Bradstreet's Switching Costs
Posted by: Barel Karsan (IP Logged)
Date: July 5, 2012 07:38AM
As Pat Dorsey argued in his book about competitive advantages, one of the strongest advantages a firm can have is high switching costs. Recently, Dun & Bradstreet (DNB) was discussed on this site as a potentially cheap company with what appears to be a strong moat. Thanks to a find by Taylor, we can get a pretty good look at what perhaps the company's largest (at over 1% of DNB's revenue) customer sees when it ponders switching from Dun & Bradstreet.
This government report shows just how ingrained Dun & Bradstreet has become within the government's own data systems. As per the report:
"GSA identified approximately 80 data systems that contained DUNS information extracted from CCR and would therefore have to be modified in the event of a transition to a new numbering system."
As a result, DNB has been able to charge the government quite a bit more than competitors have bid:
"Dun & Bradstreet effectively has a monopoly that has contributed to higher costs."
Part of the challenge is also that DNB's database has network effects that make it the most comprehensive source of information:
"DUNS contracts have been sole-source awards because of the FAR requirement that all government contractors obtain a DUNS number, and because they have been unable to identify an acceptable alternative."
But even though DNB charges high prices thanks to its market position, and the government knows it, it can't just pull the plug:
"A key factor in deciding whether to replace DUNS numbers in government data systems is the cost of switching. In the event of a change, GSA and dozens of other agencies would have to modify their data systems, replace all DUNS-related data in those systems, and update policies and procedures that refer to DUNS numbers. GSA officials have said switching costs could be substantial."
It doesn't look like this customer is happy! Nevertheless, it appears to be stuck with DNB for at least a few more years. Dun & Bradstreet would probably be wise to find more ways to provide additional value to this and its other customers (i.e. widen its moat) during this period.
You can read the full report here.
Disclosure: No position
Stocks Discussed: DNB,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.