1996: How is Amex addressing its declining market share?

AUDIENCE MEMBER: Mr. Buffett, I am Harriet Morton from the Emerald City [Seattle], the same area, the land of Microsoft. And I have a couple small questions.

The first one is, recognizing your lack of interest in technology or sense of familiarity with it, I’m wondering if you’d give a few comments on Bill Gates as a manager.

But the second one, dealing with a business that you’re familiar with, has to do with American Express.

Would you comment on American Express’ strategy to deal with their declining market share in the credit card industry and the rising importance of debit cards? Thank you.

WARREN BUFFETT: I’m not sure I got that entirely, Charlie. Did you? I mean, I got the part about American —

CHARLIE MUNGER: She wanted you to comment on Gates as a manager and American Express as — with the problems in declining in market share.

WARREN BUFFETT: Well, the first part is very easy. You know, Bill Gates is, you know, one of the great managers of all time and is an exceptional business talent who loves his business.

And when you get that combination and a high energy level and, now, an heir to leave it to, I don’t think you do much better than that.

American Express has, you know — has slipped over from where they were 20 years ago, obviously, in the credit card business. And I think they may have taken their customer a little bit for granted for a while.

I think [CEO] Harvey Golub is very focused on correcting that and has made some progress. But the credit card business is a very different competitive struggle now than it was 20 or 25 years ago.

Interestingly enough, American Express, itself, backed into the business. Because they were worried about what was going to happen to their traveler’s check business, originally.

And they saw Diners Club come along. A fellow named Ralph Schneider and — started it. And they saw the inroads that were being made. So, the credit card was a reactive move. And for a while, they really dominated the field. And of course, they still dominate the travel and entertainment part of it.

But credit cards are going to be a very competitive business over time. And you need to establish — American Express needs to establish — special value for its card in some way, or it gets more commodity-like.

It’s not an easy business. But their franchise — they’ve got a strong franchise. It is not what it was 20 years ago, relative to the competition.