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Dien Rice
July 4, 2015, 09:39 PM
If you look at the list of the 10 richest Americans (http://www.forbes.com/forbes-400/), they all made their money from toll positions...

1. Bill Gates - he managed to "swipe" IBM's toll position when he licensed MS-DOS to IBM, with the permission to sell it separately. IBM thought the "toll position" was in the hardware, not in the operating system! But Bill Gates saw where the "toll position" was very clearly. Microsoft has repeated this over and over, and has built another strong toll position in particular with "Microsoft Office" - which is also the de facto standard for word processing, spreadsheets, presentations, etc. If you collaborate on a document in many industries, love it or hate it, Microsoft Word is the "standard"... you can't bypass it!

2. Warren Buffett - I studied Warren Buffett's investment style years ago. He made money by acquiring "toll positions," though in that context it's often called a "strong franchise." It just means a company which is very hard to compete with, often because of a strong brand name (which is a kind of toll position). A couple of his investments are "Coca Cola" and also "Procter & Gamble," which has many strong brand names. https://en.wikipedia.org/wiki/List_of_Procter_%26_Gamble_brands

3. Larry Ellison - Oracle is virtually the only database of choice for very large companies. They need stability, continuity, etc. No other database company serves the needs of this particularly profitable niche the way they need to be served, so Oracle has that market wrapped up. It would also take a heck of a lot of resources to compete with Oracle for that market. All of these make it a toll position.

4 & 5. The Koch brothers. They're the most complex ones to analyze in the top 10, because their business is so diverse. However, they deal in very complex areas of the petrochemical industry, with complex regulations, so the "knowhow" of their business is part of their "toll position." Furthermore, they acquire companies all the time, and they only invest in businesses with high "barriers to entry" (http://blogs.wsj.com/moneybeat/2013/07/03/koch-industries-we-dont-do-hostile/) (which is another type of toll position). They inherited a lot from their father, but have also built it up spectacularly.

6. Jeff Bezos. Nobody can compete directly with Amazon on their scale, I don't think I need to delve into it. They've created a further "toll position" with their Kindle platform for ebooks. I bet everyone reading this has ordered from Amazon at some point in time.

7. Mark Zuckerberg. Again, Facebook is a standard. I think, because of changing cultures and technology, Facebook may be more fragile than the others, but they manage to stay ahead with constant innovation.

8. Michael Bloomberg. He has a strong toll position in the financial services industry. They may not be well-known by ordinary folks, but most investment funds use Bloomberg products.

9 & 10. The Waltons. Wal-Mart is an inherited toll position for them. In smaller towns and cities across the USA, there's often no direct competition, and the population is not large enough to sustain a competitor (unlike in the big cities). Therefore, if you want to buy at discounted prices, Wal-Mart is the only game in town.

I bet you could go down the list of the whole top 100 richest Americans... and you'd find they all made their money from toll positions.

Most of these guys created their toll positions, though some were acquired (Warren Buffett, and some Koch brothers assets), and two were inherited (the Waltons, the Koch brothers).

Sure, you can make "good money" without a toll position... such as making hundreds of thousands of dollars or more a year, by being very smart and working hard. For example, if you work for an investment bank, you could get paid $100,000 to $500,000 a year... and work 90 to 100 hours a week. Personally, I don't want to work that hard!

Best wishes,


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