Paradigm Shifts Within Technology
I recently read Benedict Evans’ How to lose a monopoly. The one thought that popped out to me is the case against economic moats.
What is an Economic Moat
A castle moat is a body of water surrounding the castle that acts as a line of defence from invaders.
Similar to a castle moat, an economic moat protects a company from its competitors. But instead of a body of water, a company has network effects, brand and loyalty, economies of scale, etc.
A modern day example would be Amazon’s economy of scale. Amazon can leverage its operational control to create a cost advantage with its products. Specifically, with Amazon Prime, they can provide cheap and fast shipping.
Good luck competing with that.
A common question Venture Capitalists ask founders is “what is your moat?”.
But what if a new technology or new platform comes in that disrupts your moat. What if we now have flying machines that can fly over your moat, or maybe we don’t care about the resource you’re hoarding.
This has happened many times with new technologies or platforms. From personal computing, to the internet, to mobile, to the cloud, just to name a few.
At that point, your moat is irrelevant.