Great Product

Krispy Kreme Doughnuts

Great Executation Star Manager

Easy moats No moat

Peers can easily copy Efficient operations Not sustainable Kodak

Difficult Moats High market share

IBM [PCs] GM [Motors]

Moat

Moat Erodes

Possible ex-post not ex-ante

Brand Intangible assets

Moat likely to persist for number of yrs High ROIC

Yes moat

Sustainable Some business are structurally better than others

Imp stuff

Regulatory license Customer Switching costs Network Effect

Predictable

Cost advantage

Easy

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Patent

Customer switch brands

Customer willingness to pay

Brand

Yes Moat Only if

Customer captivity Ability to charge premium prices

Nopes

Popularity Diversified

Yes History of innovation Single or few

Patent

Intangible assets

No history of innovation Beware

Challenge Eg. Generics keep challenging Weak pipeline License to operate Banks, Pharma, Credit rating, NIMBY

Yes

No control on profits ONLY IF HIGH ROIC

Regulatory license

Fertilisers Beware

Control on profits Utility

No. of SMALL legal rules BETTER rather than ONE SINGLE RULE

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Intuit Accounting software

Eg

Critical to business Training cost

Oracle Banks Money mgt firms

Switching costs

LOW switching costs Imp stuff

Retailers Restaurants

Need to have through customer exp to understand switching costs Tight integration with customers business

Other points

Monetary costs Low tolerance for failure Retraining costs

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Bearing

Knowledge based

Predominant

Information based

Value No. of users

What

Credit cards Eg

Money transfer Future exchanges

Network Effect

Yahoo launch in Japan

First mover advantage

Five months before e-bay Yahoo now dominates

Fast growing market Consumer preferences not yet formed

Beware

E-bay lost in China, despite market leader. STock exchanges Open networks

Buy on BSE, sell on NSE.. Closed network more adv...

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Sustainable???

Imp Question

Matter more in PRICE SENSITIVE industries... Easily available SUBSTITUTE.. Lazy Competitors Why Sustainable Trade-offs

Cheaper process

Cost advantage

Dell NOT everlasting

Sources

Southwest Airlines Temporary moat [8-10 yrs]

Unique assets Cement plants Better location

Aggregates NIMBY

Greater scale

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No moat

Always Relative

Yes

Boeing Vs Airbus STFC vs Rivals

Big fish in small pond better Than small fish in Big pond Consolidated Industry

High Refining

Fixed cost

Fragmented Industry Low Grocery stores

Greater scale

Reliance Manufacturing Relaxo Footwear Ador Fontech LG Balakrishna

Sources

Niche Big Fish in a very small pond small market size, cannot support > 1-2 players Door to door delivery network Distribution

Coca - Cola Extremely hard to replicate Page Industries

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pricing power

Early signs

Irrational competitor [State backed]

Furniture & Textile in US

Wallmart

Technology companies

Cheap labour China

Moat Erodes

Concentrated buyers

Newspaper Encyclopedia

Technology Disruption

Long distance telephone

Mobile phones

Short product cycles

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Low switching costs

Retailers, Restaurants

No loyalty Lot of little things need to go right

Difficult Moats Insurance companies

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Banks

Integrated firmly into business process

Business services Regulated utilities

Bond rating Eg. Data processors & High switching costs

Easy moats Gas pipelines

Consumer goods

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