The “moat” concept comes from Warren Buffett and his investment philosophy. He borrowed the medieval castle metaphor – just as a moat around a castle protects it from invaders, an “economic moat” protects a business from competitors.
Buffett looks for companies with wide, durable moats – competitive advantages that are hard for others to replicate or overcome. Things like:
- Strong brand loyalty (Coca-Cola)
- Network effects (the more people use it, the more valuable it becomes)
- High switching costs (enterprise software)
- Economies of scale
- Regulatory advantages
- Unique assets or data
The idea is that even if competitors try to attack your business, the moat makes it extremely difficult and expensive for them to succeed.
In the case of a long standing application, the moat is that 10 to 20-year foundation of trust relationships – something a new competitor can’t just build overnight. Google has information, but they don’t have two decades of people in your industry saying “I trust this source.”
The strategic question becomes: how do you deepen that moat (make the trust advantage even stronger) while also making sure it doesn’t become irrelevant due to changing customer behavior?
How does design factor in?
Design is an important element of this, not only brand design but application design and a strategic design plan. If you know your users, and your competition, you can strengthen your fortifications and make it harder for competitors to recreate a single piece of your advantage. They have to copy the whole system.
The UX of a product or service can be a barrier for entry. When the iPhone came out there were no competitors (Apple created an entirely new product category!) which killed any company that couldn’t keep up. Industry stalwart Nokia burst into flames. However, by first copying then creating a cheaper, more accessible product, Samsung managed to take quite a bit of market share.
Apple became a trillion dollar company, and Samsung has taken a long time to catch up, standing at about 100 billion in valuation as of now.
Walmart’s cross docking concept is often copied, but this is only one part of the puzzle. Their competitors cannot reach Walmart’s customer base because Walmart has created an entire system based around only carrying products that sell, and not storing those products in any one place for very long.
A successful moat means you slow down your competition and also give yourself time to innovate and conquer new territory!
It’s a really useful framework for thinking about sustainable competitive advantage versus just temporary market position.
