This would also include the software technology that powers internet giants such as Facebook and Google, as well as the operating procedures of Starbucks or the value of the Coca Cola brand.
Artificial, or augmented, intelligence and the associated value extracted from Big Data are important intangibles, which must be analysed and assessed when valuing equities. While these analytical tools are commonly exploited to grow revenue and profitability of the major technology disruptors, the usage of data analytics is now spreading to the more conventional players, including financial service providers, with a view to also enhancing shareholder returns.
Companies focusing on intangibles tend to have capital-light business models. Their output is often highly scalable, facilitating massive growth in their networks without a corresponding surge in input costs. As we discussed in last year’s Forum, this has coincided with growing concentration within sectors well beyond technology and, ironically, a decline in dynamism. This has in turn led to a rising share of profits at the expense of labour. Political forces such as regulation rather than economic pressures may ultimately contain concentration but, for now, these are arguably operating in reverse, at least in the United States.