What is a MOAT
MOATs (douves / fossé in French) are durable competitive advantages a company holds.
Types of MOATs
Network effect
When the value of a product increases as the number of users grows (or other relevant metrics in the business).
Examples:
- Mastercard & Visa in payments (huge networks implemented worldwide in banks, businesses and with users), a newcomer will have to convince all 3 at the same time, very hard to do
- Amazon in e-commerce with their huge catalog (for users) and user base (for sellers)
Switching costs
When the cost of switching to a competitor (which might have better pricing or more features) is higher than the benefits.
Examples:
- Hyperscalers (Amazon AWS, Microsoft Azure, Google GCP) for big companies that have hundreds if not thousands of services (instances / serverless functions / load balancers / databases etc), resulting in migrations generally costing more than potential cost savings
- Ecosystems like Apple where everything is interconnected with exclusive features between Mac ←> iPhone compared to an Android phone for example
- Habitude in general with a service / product, where users don’t want to learn how to use a different one if the benefit isn’t “good enough”
Cost Advantage
Operational excellence of a company allowing it to undercut competitors on price while earning similar margins
Examples:
- Ryanair (transports you safely from one location to the other with a lower cost than traditional airlines, still the most profitable European airline despite competitors now in the low-cost flights)
- Amazon with e-commerce and their extremely well organized delivery infrastructure
Intangible Assets
Brand, patents, IP, regulatory licenses & other intangible assets that prevent competitors from duplicating a company’s products or allow it to charge a price premium
Examples:
- Luxury brands (Hermes, LVMH…)
- Medicine companies with patents (Eli Lilly, Novo Nordisk…)
- Original content (IP) on streaming platforms (Netflix, Amazon Prime…)
Efficient scale
When a market is too small to support more than one or two players profitably, discouraging new competition
Examples:
- UPS / FedEx for delivery in the US
- Union Pacific in the US or SNCF in France (even though this is special as its owned by the state), once rail infrastructure is built along a route adding another competitor would be costly and inefficient
Sources
- VanEck’s blog
- Bourseko podcast (in French)