I love investing in ASX shares that provide mission-critical products. Companies with products so deeply embedded and vital in their customers' operations that they're hard to give up.
These products are sticky, contributing to high levels of customer retention and recurring revenue. This stickiness can also act as leverage for lucrative pricing power.
With that in mind, let's take a look at three ASX 200 tech shares that, in my view, provide mission-critical products.
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WiseTech Global Ltd (ASX: WTC)
Kicking things off, WiseTech is a leading provider of freight forwarding software through its flagship CargoWise product.
CargoWise is an all-in-one logistics platform used by 10 of the top 25 global freight forwarders.
Companies like Toll and DHL rely on CargoWise to execute complex logistics transactions and manage their freight operations from a single platform.
Demonstrating its stickiness, CargoWise boasts an enviable customer retention rate of 99%. In fact, the software platform has recorded less than 1% customer attrition every year for the last 10 years.
Due to the nature of the product, it's no surprise that a large majority of WiseTech's revenue is recurring. This figure sat at 89% in FY22, contributing to WiseTech's stable and predictable revenue streams.
Xero Limited (ASX: XRO)
Next up is Xero, a pioneer of cloud-based accounting software that plays an integral role in the operations of its small to medium-sized business customers.
Xero is best known for its bookkeeping solution. But it can also handle everything from invoicing and payroll to inventory, quotes, and purchase orders.
This entrenches Xero into its customers' workflows, adding more value than the monthly subscription fees it extracts.
These subscription fees have only been heading higher over time, with minimal effect on customer retention. In other words, Xero has flexed its pricing power to great effect, with a consistent stream of new features also helping customers to stomach the steeper fees.
In Xero's most recent 1H23 results, the ASX 200 tech share reported average revenue per user (ARPU) of NZ$35.30, up from NZ$31.32 in the prior corresponding period. Meanwhile, churn remained stable at 0.91% of monthly recurring revenue.
As I've highlighted previously, I believe Xero is a business with terrific unit economics.
Altium Limited (ASX: ALU)
Altium rounds out this trio of ASX 200 tech shares that provide mission-critical products.
Coincidentally, all three of these companies are part of the once-infamous 'WAAAX' group of ASX tech shares.
Altium provides software for the design of printed circuit boards (PCBs).
PCBs are those little boards (most commonly green in colour) that house a bunch of electronic components, such as chips and resistors.
These boards sit inside almost every electronic device, from cars and home appliances to mobile phones and manufacturing equipment.
As you can imagine, there are a lot of intricacies involved in designing a board that mechanically supports and electrically connects a range of different components.
This is where a PCB design software tool, such as Altium's flagship Designer product, enters the fray.
Altium considers Designer as the default software tool of choice for electrical engineers, from those studying at university to those working at world-class companies, such as Tesla Inc (NASDAQ: TSLA) and ResMed CDI (ASX: RMD).
So not only is Altium Designer a mission-critical product, but it's also an industry-leading tool that benefits from a reinforcing loop. University students are trained to use Altium's products, and companies require their engineers to be proficient with these products, which only reinforces Altium's prominent position.
