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Investors are obsessed with moats, but people have to realize that the entire world runs on business that have no moats. There are no moats to being a plumber,

Investors are obsessed with moats, but people have to realize that the entire world runs on business that have no moats. There are no moats to being a plumber, a baker, a restaurant... The moat concept is predominant because the idea that everything must make billions have infected the debate about businesses. It's all about being a unicorn, a giant, a monopoly, making every body at the top billionaires, and it's like there is no other way to live. Except that's not how most people do live, even entrepreneurs. Even Apple, which today is the typical example of a business with a moat, didn't start with "we can't get into this computer business, we'd have no moat". They have a moat now, but it's a consequence of all the business decisions and the thing they built after many decades. They didn't start their project by the moat. The started their project by providing value and marketing it.

nashashmi 3y ago
Shareholders gain pennies with moats, pennies that someone else does not earn. Without moats they benefit much more, but it's not more than someone else. And that's the contentious issue. How would I benefit more than my neighbor?
nologic01 3y ago
> Investors are obsessed with moats You can't blame them: gratuitous moats (like those provided by winner-takes-all dynamics) are not common in a functioning (competitive) economy so they get to be revered. It feels unlikely that the recent period of big tech can keep the same benefits going forward. It was basically a political moat: counting on the ongoing lack of antitrust and consumer protection regulation. Even if the political dysfunction that allows that continues (quite likely), the wheels of the universe are turning. The "leaked" report focuses on open source - a mode of producing software that is bound to become a major disruptor. We tend to discount open source because of its humble beginnings, long incubation, many false dawns and difficult business models. But if you objectively take a look at what is possible today with open source software, its quite breathtaking. I would not discount some tectonic shifts in adoption. The long running joke is "the year of the linux desktop", but keep adding open source AI and other related functionality and at some point the value proposition of open source computing (both for individuals and enterprises) will be crushingly large to ignore. Don't forget too, that other force of human nature: geopolitics (e.g., think TikTok and friends). The current "moats" were established during an earlier, more innocent era. Now digitization is a top priority / concern for many countries. The idea that somebody can build a long-lived AI moat given the stakes is strange to say the least.
moberemk 3y ago
> There are no moats to being a plumber, a baker, a restaurant... This line is interesting to me, because actually I think there _is_ a major moat there: locality. I don't disagree with the rest of your comment, but for those examples specifically a lot of the value of specific instances of those business comes from their being in your neighborhood. If I live in Toronto, I'm not going to fly a plumber from Manhattan to fix my pipes; if I want a loaf of sourdough, I'm not going to get it from San Francisco, I'm going to get it from the bakery around the corner; I might travel out of town for a particularly unique and amazing restaurant, but not every week, I've got solid enough options within a ten minute drive. Software is different because that physical accessibility hurdle doesn't exist. Rest of this is spot-on though
- hudon 3y ago
  What you're describing is less a statement on moats and more a statement on markets. Plumbers in one location share the market (the potential clients in that area), and as the parent comment states, there is no moat in that given market. A moat is a barrier to compete within a given market. So if something made it really difficult for a new plumber to serve an already-served clientele, that would be a moat. But individuals on the other side of the planet are by physical encumbrance not actually clientele... they're not even in the market.
mastax 3y ago
No reason to invest loads of capital unless you're building a moat.
- BiteCode_dev 3y ago
  Yes, but open ai is not an investor, it's the company. They don't have to follow this logic, they can build something without thinking of the moat, and succeed anyway. The moat is a priority for rent seekers, but most successful builders didn't start by that. Coca cola, Mac Donald, Gillet and all the Buffet favorite children didn't grow by thinking moat first. The moat was built on the way, sometimes very late.

nashashmi 3y ago

Shareholders gain pennies with moats, pennies that someone else does not earn. Without moats they benefit much more, but it's not more than someone else. And that's the contentious issue. How would I benefit more than my neighbor?

nologic01 3y ago

> Investors are obsessed with moats You can't blame them: gratuitous moats (like those provided by winner-takes-all dynamics) are not common in a functioning (competitive) economy so they get to be revered. It feels unlikely that the recent period of big tech can keep the same benefits going forward. It was basically a political moat: counting on the ongoing lack of antitrust and consumer protection regulation. Even if the political dysfunction that allows that continues (quite likely), the wheels of the universe are turning. The "leaked" report focuses on open source - a mode of producing software that is bound to become a major disruptor. We tend to discount open source because of its humble beginnings, long incubation, many false dawns and difficult business models. But if you objectively take a look at what is possible today with open source software, its quite breathtaking. I would not discount some tectonic shifts in adoption. The long running joke is "the year of the linux desktop", but keep adding open source AI and other related functionality and at some point the value proposition of open source computing (both for individuals and enterprises) will be crushingly large to ignore. Don't forget too, that other force of human nature: geopolitics (e.g., think TikTok and friends). The current "moats" were established during an earlier, more innocent era. Now digitization is a top priority / concern for many countries. The idea that somebody can build a long-lived AI moat given the stakes is strange to say the least.

moberemk 3y ago

> There are no moats to being a plumber, a baker, a restaurant... This line is interesting to me, because actually I think there _is_ a major moat there: locality. I don't disagree with the rest of your comment, but for those examples specifically a lot of the value of specific instances of those business comes from their being in your neighborhood. If I live in Toronto, I'm not going to fly a plumber from Manhattan to fix my pipes; if I want a loaf of sourdough, I'm not going to get it from San Francisco, I'm going to get it from the bakery around the corner; I might travel out of town for a particularly unique and amazing restaurant, but not every week, I've got solid enough options within a ten minute drive. Software is different because that physical accessibility hurdle doesn't exist. Rest of this is spot-on though

hudon 3y ago
What you're describing is less a statement on moats and more a statement on markets. Plumbers in one location share the market (the potential clients in that area), and as the parent comment states, there is no moat in that given market. A moat is a barrier to compete within a given market. So if something made it really difficult for a new plumber to serve an already-served clientele, that would be a moat. But individuals on the other side of the planet are by physical encumbrance not actually clientele... they're not even in the market.

mastax 3y ago

No reason to invest loads of capital unless you're building a moat.

BiteCode_dev 3y ago
Yes, but open ai is not an investor, it's the company. They don't have to follow this logic, they can build something without thinking of the moat, and succeed anyway. The moat is a priority for rent seekers, but most successful builders didn't start by that. Coca cola, Mac Donald, Gillet and all the Buffet favorite children didn't grow by thinking moat first. The moat was built on the way, sometimes very late.