Brands in the tech sector are likely to record mixed fortunes as a result of the COVID-19 pandemic, with retail tech brands predicted to fare the best compared to leisure and tourism tech brands, which are expected to suffer considerably, according to the latest report by Brand Finance. The top 100 most valuable tech brands, on average, should see a slight decrease in brand value following the pandemic, falling 5%.
The Brand Finance Tech 100 2020 ranking is split into sub sectors, with electronics, software, retail and media & games analysed separately as these brands make up more than 80% of the total brand value in the ranking. All brand values are correct as at 1st January 2020.
Alex Haigh, Director, Brand Finance, commented:
“The sheer size and diversification of the tech sector undoubtedly means that brands are going to be affected differently from COVID-19. On the one hand, e-commerce brands are likely to see a boost to their brand values following record high demand. In contrast, other tech brands’ journeys in the coming year could be more turbulent, with supply chains impacted, consumer spending shifting and slowing demand impacting brands’ bottom lines and, in turn, their brand values.”
Electronics: Apple storms ahead despite losing brand value
Making up 27% of the total brand value and with 30 brands featuring, electronics are the dominant sub sector in the Brand Finance Tech 100 2020 report. The electronics sub sector is likely to be moderately impacted by COVID-19, with a potential 10% loss of brand value at stake.
Leading the way is Apple, recording a 9% drop in brand value to US$140.5 billion and simultaneously dropping to 3rd spot in the ranking, with Google (brand value up 12% to US$159.7 billion) overtaking in 2nd.
Apple has struggled to grow in key emerging markets, showing little motivation to diversify its portfolio. Brand Finance’s analysis shows that Apple could lose up to 20% of its brand value following the pandemic with supply chains broken and consumer spending slowing - the brand will be hoping the return to normality in China could offset some of this damage.
With an impressive brand value growth of 37%, ZTE is the fastest growing electronics brand - its surge in brand value bolstered by its increased adoption of 5G. Telco equipment brands should be in a solid position to experience good growth as the rise of 5G accelerates globally.
Software: Google overtakes Apple
The second most valuable sub sector, software, makes up 21% of the total brand value in the Brand Finance Tech 100 2020 ranking with 15 brands featuring. Brand Finance’s analysis shows that software brands could lose up to 10% of their brand value as a result of COVID-19.
With a brand value of US$159.7 billion, Google is the most valuable software brand in the ranking and the 2nd most valuable in the overall ranking. Google’s sleek brand extension from software to hardware, is a direct threat to Apple, who have lost their streak of brilliance in recent years. COVID-19 is likely split Google’s fortunes down the middle with Google Cloud predicted to celebrate boosted demand, as remote working becomes widespread. The pandemic does pose a major threat to its advertising business, however, – where the majority of the brand’s revenue comes from - which is inevitably going to slow down.
Chinese software giant Baidu recorded the largest drop in brand value in the ranking, down 54% to US$8.9 billion. The company reported its first quarterly loss since its initial public offering (IPO) back in 2005. Along with intense market competition, the brand’s revenues were heavily impacted as regulators placed more attention on online advertising. Baidu is now focusing on other areas to drive long-term growth, such as its cloud division, smart speakers, and even driverless cars in an effort to secure better results for the future. The combination of the economic slowdown in China and COVID-19’s damage to ad sales, will no doubt cause some damage to ad-dependent brands like Baudi.
Retail: Amazon primed for more growth
Retail brands contribute 19% of the total brand value in the ranking, largely as a result of the sheer dominance and size of the world’s most valuable brand Amazon. Bucking the trend of traditional bricks and mortar retail, e-commerce brands have the opportunity to thrive in the current climate as demand reaches record highs. Retail is, therefore, the only subsector in the Brand Finance Tech 100 2020 ranking, that could potentially see an increase in brand value as a result of COVID-19, up to 20%.
Breaking the so far unattainable US$200 billion brand value mark, following 18% growth, Amazon remains a cut above the rest. While most brands are experiencing or expecting a slump in revenue during the pandemic, Amazon is set for continued growth. As with fellow e-commerce brands, Amazon has been benefitting from the unprecedented surge in demand as consumers turn online following store closures.
Japan’s Rakuten is the fastest growing brand in the ranking, recording an impressive 66% brand value growth to US$5.2 billion. The Tokyo-headquartered brand has celebrated strong growth in its domestic e-commerce services and has its sights set on building upon and winning new customers with the aim of cross-use of services to further open up the brand’s ecosystem.
Media & Games: limited damage from COVID-19
The 14 media & games brands make up 18% of the total brand value in the Brand Finance Tech 100 2020 report. Eight of these brands hail from the US and have grown, on average, 12% in brand value year on year. Brand Finance’s calculations have found that this sub sector is going to suffer limited impact from COVID-19, equating to a 0% change in brand value.
Media & Games’ most valuable, Facebook (brand value down 4% to US$79.8 billion), has negotiated several high-profile reputational issues, most notoriously the Cambridge Analytica scandal, which resulted in a US$5 billion fine last year. The pandemic could, however, turn the tide on the tarnished brand, as people are forced to keep in touch with friends through social media. Facebook has also been developing a symptom survey, which is hoped to reveal a lot about COVID-19 and contribute to research.
In contrast, Facebook-owned Instagram has enjoyed an explosion of growth, securing the second highest brand value increase among all tech brands this year, up 58% to US$26.4 billion. The platform is successfully leveraging its position in the market as a genuine business tool – beyond its traditional influencer market – as more businesses move online during lockdown.
In line with positive trends in brand value among other video streaming services, last year also saw Netflix enjoy an 8% boost in brand value to US$22.9 billion. Netflix has been a pioneering force in changing consumers’ viewing habits. This success has only been spurred on by COVID-19, with the timely release of Tiger King raking in 34 million US viewers in the first 10 days alone.
In addition to calculating overall brand value, Brand Finance also determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. Alongside revenue forecasts, brand strength is a crucial driver of brand value. According to these criteria, WeChat is the world’s strongest tech brand with a Brand Strength Index (BSI) score of 92.9 out of 100 and a corresponding elite AAA+ brand strength rating.
WeChat has significantly broadened its proposition since its inception, successfully leveraging its brand to develop an extraordinary level of vertical product integration. With WeChat Pay now being accepted in more than 60 countries and the platform opening to international travellers in China for the first time, the brand has set its sights on global markets.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 100 most valuable tech brands are included in the Brand Finance Tech 100 2020 report.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Tech 100 2020 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the severity of enterprise value loss observed for the sector in the period between January and March 2020
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.