Why Moats Matter?
5 Moats type that we must know.
Recently I just read the book “Why Moats Matter.” It has written by Morning star, a famous analyst.
As we know profits attract competitors.
The Moat is the unfair advantage of the company. The wider of Moat means, the more difficult for a competitor to enter and compete.
This book defines five types of Moat
1. Intangible asset
Brands, Patents, or government licenses that explicitly keep competitors at bay.
AOT, BTS — Government license
Starbuck, Disney, After you — Brands
Pfizer, Sanofi — Patents
2. Cost advantage
The cost advantage is the ability to provide goods or services at a lower cost. They can undercut their rivals on price.
CP have 7eleven, so it has a cost advantage to sale their product such as daily product, Fresh food. Even if they want to
3. Switching cost
The inconveniences or expenses a customer incurs to change from one product to another. Customer-facing high switching cost won’t change providers unless they offer a significant improvement
Hospital, We tend to stay with the same hospital and the same doctor because it has switching costs when we move to another hospital. We have to start all the workups and build up our health data.
Apple, If you used to be Apple fanboy and one day, you were switching to android. It was excruciating. Primarily if you use many Apple gadgets.
4. Network effect
When the value of a particular good or service increases for both new and existing users as more people use that good or service.
Facebook, Line, Youtube, Google, and most tech company, They all have a network effect; it seems a pretty simple concept but extremely difficult to make it happen.
5. Efficient scale
A market of limited size is effectively served by one or just a few companies.
The airport at Koh Samui is one good example that if competitors want to open another airport in Samui, it will have insufficient returns.
Summary
From historical data, we will found that the company that has a broader Moat has kept its leading position in the market.
If you are an entrepreneur founding company and found that you have no Moat, It does not mean that you can not run a business, but It might be challenging to compete for the longterm.
I hope we can build the Moat in our company.
Best regards
:->m
