(2022-05-07) Cohen Moats Durable Competitive Advantage

Jason Cohen: Moats: Durable competitive advantage. Industries commoditize over time, delivering similar products at similar prices resulting in low profit. Moats are the antedote; your strategy must create some.

To avoid homogenization, a company needs differentiation that others cannot copy. Best is differentiation that customers care about.

Second-best is differentiation in cost structure

Durable differentiation is rare, especially in the software

It is not even enough to have a competitive advantage; the advantage must also be durable.

A taxonomy of moats

The concept appears everywhere—a characteristic of fundamental truth—for example more recently and famously in Hamilton Helmer’s 7 Powers.

Jerry Neuman collected, organized, and detailed a terrific taxonomy of moats. 2019-09-19-ATaxonomyOfMoats

Applying moats to a commoditized market: Cloud Computing

AWS has largely avoided commoditization. The proof is in the market-share and in the profit

In 2019, then-CEO of AWS (now-CEO of Amazon) Andy Jassy, on stage in a live interview with the great Kara Swisher, was asked directly: Why hasn’t AWS commoditized? Jassy immediately fired off the moats from their anti-commoditization strategy, annotated here with the bullet points from the taxonomy diagram:

Innovates the fastest [Economies of Scale + Willingness to Experiment]

Biggest Ecosystem [Complementary Assets]

Advanced operating maturity [Learning Curve]

Brand of “The Leader” [Brand]

Has the biggest menu of technology to select from [Switching Costs]

Moats are integral to business strategy

Moats don’t appear quickly or by accident; they require consistent investment and prioritization over a course of years. This is exactly what a “strategy” is supposed to organize, and what “just be agile and react to whatever happens” will not.

A strategy that states “We will create switching costs” is not a strategy; it is a statement of what you hope will become true, rather than an explanation of how you will cause that to become true

A strategy to intentionally create switching costs looks more like this: (Nice detailed example)