TSLA, Brown & Brown, Rolex & Watches of Switzerland, DJCO, Belron, VEEV, bioMérieux, Dynatrace, TechTarget

Published Last Week

1. Brown & Brown: Retail Broking & Producer Compensation

2. Watches of Switzerland & the Luxury Watch Market

3. Tesla: Servicing & Auto Parts Operations

4. Belron: Safelite's Competitive Advantage

5. Daily Journal vs Tyler Technologies: US Judiciary & Court Software

6. bioMérieux: The BioFire Platform

7. Veeva Align, Link, and OpenData vs IQVIA OneKey

8. TechTarget: BrightTALK Acquisition & Integration

9. Dynatrace: Datadog, User Personas & Switching Costs

Brown & Brown: Retail Broking & Producer Compensation

Brown & Brown (BRO) is a $26bn US-listed retail and wholesale insurance broker. Over the last 20 years, BRO and its peers have comfortably outperformed the S&P:

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Insurance brokers are effectively sales shops. Outside of MGAs, they all use the same carriers and receive similar pricing. Brokers are ‘people’ organizations; the sales people, also called Producers, foster relationships with customers to win and retain years of insurance premiums. Just like most professional service firms, the greatest assets are its sales people.

But this is also where the risk lies. What stops the best people leaving and taking their book with them? Ensuring brokers retain the best Producers is crucial to organic growth. Increasingly over the years, brokers fight for the best Producers. They poach brokers from each other across all lines of insurance. And after the recent FTC action to ban non-compete agreements, the bargaining power of the best Producers may only increase.

We interviewed a Former leading construction broker who left Brown and Brown to join a competitor. He took 90% of his book with him within months. The competitor who poached this executive paid BRO for the book. The main reason he left was because Brown & Brown paid less than competitors:

So with Brown & Brown, you got paid 40% of the commission if it was a new account, 20% if it was a renewal. I will tell you that 20% is the lowest in the industry. That's one of the big problems with Brown & Brown; everything is about controlling expenses, but they don't pay the salespeople enough. Quite frankly, 20% is not enough, especially the way we were running. If you write the business and then handle the renewal, you're involved in each renewal and you're involved in meetings and the day-to-day activities, 20% is not going to cut it. They have a great job in attracting talent and training talent. They do a great job. Retaining is a big issue and the splits are very low. - Former VP at Brown & Brown

Brown & Brown is relentlessly focused on reducing costs which can discourage the best sales people:

Their biggest thing is cost reduction. Cost reduction and expense control. They want to have the best profit margins in the business. I think they're right up there as far as that. I don't know why they do that. It doesn't make sense to me. The local branch where I was at, up until 2020, hasn't had one homegrown trained producer ever since 2007. What happens is even if somebody starts out and they're doing well, and it's not easy nowadays to build up a book from scratch as they're doing it and as they're talking to more and more people, they find out what the compensation is and they often leave before the book gets too big because of all the non-competes and non-solicits and all that. - Former VP at Brown & Brown

Although it's hard to get a clean comparison on retail brokerage margins, lower commissions for Producers may be one reason why BRO has higher margins than peers:

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The interview goes on to explain how Producer compensation differs between brokers, the price to buy a book when poaching a broker, and the potential risks to BRO and all brokers if non-compete agreements are outlawed in the US. We plan to continue coverage across insurance brokerage channels to understand how the moat of companies like BRO is evolving.

Watches of Switzerland & the Luxury Watch Market

Watches of Switzerland (WOSG), the UK-listed international retailer of luxury watches, is down over 40% YTD after reducing FY24 guidance earlier this year. The company generates over £1.5bn in revenue from ~200 showrooms roughly split between the UK / EMEA and US.

Over the last decade, it has become a trusted retailer of the world's leading luxury watch brands. Revenue and underlying profitability has grown steadily and the company has earned healthy ~20% ROEs:

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A longstanding and critical relationship for Watches of Switzerland is with Rolex. WOSG was the first retailer to sell Rolex in the UK back in 1919, over 100 years ago. Rolex currently accounts for over 50% of WOSG’s revenue. And Rolex sure understands its power:

Rolex, at the top of that, runs it almost like a cartel. It's almost cartel-like in how it operates. What I mean by that is they're the first priority. Whatever Rolex says goes, and then everything else falls into place, like a domino effect. I'll give you a very good example. Fraser Hart is a jeweler here in the UK. You may or may not be aware of them. They had seven Rolex agencies and wanted to sell all seven. Watches of Switzerland Group wanted to buy all seven, but Rolex vetoed it, allowing them only four. The remaining three were given to Beaverbrooks, who introduced the loop concept. If Watches of Switzerland Group had acquired those stores, Rolex would have pulled the agencies from them. This demonstrates the type of power Rolex has, which is quite interesting when we discuss Bucherer as well. My point is that Brian Duffy was very adept at responding to Rolex's demands. When Rolex said jump, he asked how high. - Former Divisional Manager at Watches of Switzerland

This interview goes on to explore the dynamics of the Rolex-WOSG relationship and challenges to scale a retailer in the face of such powerful suppliers. More importantly, it discusses what may have potentially changed between the relationship with WOSG and Rolex.

Tesla: Servicing & Auto Parts Operations

Tesla's ecosystem is unique compared to legacy OEMs. It not only bypasses franchise dealers and sells new cars DTC, but runs insurance internally and aims to own its repair shop operations. This interview with a Former TSLA Service Operations Manager explores how it runs its aftermarket operation and the influence TSLA has on auto part suppliers like ORLY and AZO.

An interesting key metric for Tesla's service and repair operations is the percentage of cars repaired without replacing a part. TSLA also seems to run its aftermarket operations to drive customer experience and loyalty, not underlying aftermarket profitability:

A major metric we look at is the percentage of cars we can fix without ordering a part. Although it's a different approach, it serves a similar purpose. You can't achieve 80% parts availability with only 1,000 SKUs on site. It really depends on the volume. However, about six or seven years ago, Elon stated that the service department wasn't meant to be profitable; it was just meant to break even and ensure Teslas are reliable and repairable after accidents. This perspective has shifted slightly in recent years. In the latest quarterly report, we were profitable in service, but it wasn't our main focus. This approach allows us to make decisions that franchises, which aim to maximize profits, might not choose because they aren't the most financially efficient. - Former Senior Manager of Parts Operations at Tesla

But running your own repair and parts distribution network is challenging. This has led to slow repair turnaround times for customers:

We didn't have the distribution network to support it. Distribution centers are expensive. You asked about third-party versus in-house distribution. This is true for the US, and also for our EMEA and APAC arms. Tesla heavily relies on in-house operations, whether it's service, supply chain, or other areas. Even if there's an accepted third-party solution available, Tesla often chooses to handle it internally. We might struggle initially, but eventually, we improve. This was also true for our distribution; we managed most of it in-house. We had some engagements with XPO or GXO, but Tesla moved too quickly. Onboarding a third-party distribution center is expensive and takes over a year because of the need to integrate systems properly. However, at Tesla, we're opening distribution centers in about six months. They just couldn't keep up with our pace. Whether it's because Tesla moves too fast or they were doing something wrong, we ended up not working with them anymore. - Former Senior Manager of Parts Operations at Tesla

This interview goes on to explore Tesla's part availability and distribution challenges and how this may impact repair service quality and overall vehicle demand. Also, if TSLA and other EV companies can reduce the part repair rate and therefore the demand for parts, we explore how this may impact aftermarket players such as auto part suppliers and franchise dealers. Auto parts account for over 50% of aftermarket revenue:

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Next quarter, we aim to deepen our understanding of how Tesla's service operations are differentiated from legacy OEMs and how insurers look at pricing TSLA policies versus competitors.

Belron: Safelite's Competitive Advantage

In the US auto glass repair market, scaled players like Safelite enjoy preferred relationships with insurance providers. This tends to shield Safelite from pricing pressure:

You're competing against everyone for retail customers. For example, if I have a 2021 Ford F-150, Safelite might quote $800. Then, a mom-and-pop shop might come in at $700, and another might offer $600 because there are no contracts. It's about who can get it done cheapest. - Former Regional VP at Safelite

In this interview, a Former Regional VP at Safelite sheds light on the company's competitive advantage in the US market.

Daily Journal vs Tyler Technologies: US Judiciary & Court Software

In this interview, a Former Senior Project Manager at Tyler Technologies explains how the nuances of the US judiciary system operates and the fragmented nature of the software market:

Welcome to the world of courts. You might look at the criminal justice system, civil justice system, etc., and think, "You all do the same thing. You should be able to use the same system." However, you'll find that legislation in different areas tends to vary all the way down to the county, and in some cases, down to the city level. If you're dealing with city ordinances, they're different, their rulings are different. The methods they use to evaluate their cases are different. How they accept filings, the deadlines, timelines on those, and how they go about scheduling cases, they all tend to be different. - Former Senior Project Manager at Tyler Technologies

bioMérieux: The BioFire Platform

bioMérieux is one of the leaders in in-vitro diagnostics with €3.7 billion in revenue. The company's flagship platform is the BioFire platform, acquired through the acquisition of BioFire Diagnostics in 2014. The BioFire platform accounts for ~33% of revenue and has more than doubled its installed base since 2019. In this interview with a Former EVP at bioMérieux, we discuss the platform's use by hospital and laboratory customers.

What the FilmArray achieved was essentially the miniaturization of a Hologic or Roche machine into a small box the size of a slightly larger laptop. Inside this box, with microfluidics and pressure systems, you could perform a 25 to 30 parameter panel, which would otherwise require a huge lab machine. A large Hologic Panther, for instance, is a $50,000 to $100,000 investment. In contrast, the FilmArray could be sold for $5,000 to $10,000, and the panels were about $100 each. Although this is expensive per sample, it enabled a lot of clinically relevant determinations. Clinicians could rule out various respiratory viruses, look at panels of GI viruses and bacterial infections, and blood culture panels that identify what is present in a positive blood culture in terms of ID, which is crucial for therapy, whether it's gram-positive, gram-negative, or the type of bacteria. - Former EVP at bioMérieux

The BioFire's respiratory panels focus on diseases that require a turnaround in a matter of hours to get the health and financial benefits. A significant portion of the installed base is at hospital labs and volumes are relatively low compared to other panels.

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BioFire has benefitted from COVID-19 testing at hospitals but bioMérieux is now looking to non-respiratory panels for its installed base growth. A good example of this is the GI panel.

GI was really about capacity and volume sales. Then there are panels like the meningitis panel, which are lifesaving but rare, resulting in high costs but low occurrence. The lower respiratory panel is also complex, with around 35 parameters, but it's primarily used for pneumonia patients, so it's also a case of low occurrence but high value. - Former EVP at bioMérieux

Panels like GI are higher volume and slower turnaround and therefore more commonly used at central labs, driving penetration in accounts like Labcorp or Quest. This is where the higher throughput BioFire TORCH system provides a solution.

GI testing is not driven by urgency but by other factors. You wouldn't want a stool lab; instead, you want high throughput. For example, we sold about 100 FilmArray machines to Labcorp, not the SpotFire but the system before that, which I've momentarily forgotten the name of. It essentially involved stacking 12 FilmArrays. - Former EVP at bioMérieux

bioMérieux will be required to develop panels for both higher volume, less time sensitive conditions to grow within central labs and more time sensitive conditions to drive usage at hospital labs.

Veeva Align, Link, and OpenData vs IQVIA OneKey

This interview with a Former Head of Strategy at VEEV Align focuses on how VEEVs Link and Align products add value atop its CRM and how customers utilise VEEV OpenData vs IQVIA OneKey:

It's like with OpenData and OneKey, right? OpenData is also far advanced when it comes to data collection. Instead of having manual operators, it's far more automated, with more things happening automatically in the background by grabbing information from the internet and ensuring you are getting all the adjustments without waiting for someone. IQVIA's OneKey most of the time still relies on the sales rep who sees a customer for the first time at a new address and feeds information back, which is very accurate, but it can be weeks off and weeks behind from an accuracy or data up-to-date perspective. - Former Head of Straetgy, Veeva Systems

TechTarget: BrightTALK Acquisition & Integration

TechTarget is a $900m marketing services company focused on the technology industry that will merge with Informa Tech. A Former Director at TechTarget that came from the BrightTALK acquisition in 2020 explains how TechTarget added value after the acquisition.

When I left in 2022, one thing that TechTarget had done exceptionally well was operationalize how they deliver leads. They were able to scale from a much smaller audience and generate significantly more revenue than we ever could. When the deal was finalized and they acquired us, they gained a much larger audience that they could then scale. I spent 18 months working with them, integrating some of those aspects. (..) I would imagine it has probably grown relatively steadily. I think the gains they could have achieved per client and average deal size have probably gone up significantly. I believe they haven't acquired as many new clients, but they have likely grown within accounts. So, I'd imagine they're probably at a 10% to 20% growth rate still, just because of the efficiency gains, quite honestly. - Former Director at TechTarget

Dynatrace: Datadog, User Personas & Switching Costs

This interview with a Former Dynatrace & Datadog customer and Current Channel Partner highlights the main feature differences between the platforms and how users utilise the services:

To give an example, I was experimenting with a Kubernetes cluster at home. I installed both Datadog and Dynatrace and set up a RUM application. The Dynatrace installation took about half an hour, while Datadog took a week and a half because I had to get the source code for the application I was testing. I ended up creating a simple Node.js application and instrumenting it with Datadog, which was challenging since I'm not a developer. - Current Dynatrace Channel Partner and Former Customer