4 ms·
> I hear a lot of talk surrounding their "moat" and many skeptics are questioning whether or not they will be able to maintain their competitive advantage. Why
by BoiledCabbage 6y ago
> I hear a lot of talk surrounding their "moat" and many skeptics are questioning whether or not they will be able to maintain their competitive advantage.
Why do they need a moat? What happened to all the free market capitalism everyone believes in? Let the better company win out in true competition?
Or is that just a taking point, and everyone actually believes in building moats to avoid competition?
- ghufran_syed 6y agoI think the unstated context is that “moats” might justify a higher stock valuation than otherwise, which is relevant because of the behavior of the stock on IPO
- prewett 6y agoA moat is what enables you to avoid being in a race-to-the-bottom commodity business. In a commodity business you get just enough returns to cover cost of capital plus a little bit. With a moat you can get 20% - 30% profit margins: Coca-Cola, Apple, Google. A moat is also what builds an enduring business. The moat is what prevents other people from just doing that same thing you are doing but at a lower price. A moat isn't rent seeking, it is (or at least can be) out-competing. The iPhone was a huge moat for Apple for many years; they were 2 years ahead of everyone when it came out, so much so that engineers at Microsoft and RIM both thought that the announced product was impossible. The M1 is similar, everyone is probably two years behind, if they can even catch up. (Eventually they will, because Apple probably can't ride the process improvements that long)
- BoiledCabbage 6y agoA commodity business is the essence of free market capitalism. Every time you say you don't want to be in a commodity business, you're saying you don't believe in free market capitalism. You don't want competition.