I think innovation/speed is underappreciated as a source of durable moat. When we talk moats, focus has largely been on network effects, scale, branding, lowest cost, high capital cost etc. but truth is, the strongest moats can be disrupted over time if you stop innovating at..
..speed. Daniel Ek said, "There’s nothing sustainable or unique about what Netflix is doing, and in fact, I would argue that if they kept doing what they’re already doing, they will start failing. Amazon, Apple, Google–you have a bunch of these people now entering the same arena.
The pace of innovation is greater at Netflix than their competitors and therefore they’re winning. Netflix's moat did not come from all those originals/content investment, it is from moving faster and innovating faster than anyone else." Similar, $SPOT's success "will be
determined by ability to move faster than everyone else in the space. And just keep on innovating". He viewed sustained culture of moving fast and innovation as a key advantage. Similarly, Bezos emphasized Day 1 because Day 2 is stasis followed by irrelevance. And the 2 pizza
teams are there to ensure ability to move fast.. We see similar traits at successful companies across industries. Successful luxury brands have heritage but need to continue to innovate around the core to remain relevant and keep customers interested, otherwise they become TODs
Staples like Unilever continue to innovate around new products and rejig their portfolios, Apple has moved from PC to mobile to wearables, FB got their network effect because they moved faster, crossed the chasm faster than competition. There are tons more examples..
Evaluating moats as they stand is a pretty static exercise, the strongest ones tend to allow a company to last longer and continue generating economics profits even with minimal innovation. But time eventually catches on & there is only so long such businesses can keep seeking..
..rent.. The truly durable moats are then the "non-static" ones, the ones that keep innovating and moving fast. the ones that are not afraid to give up existing profit pools and go where they see future profit pools ( $nflx , $Z?)
Ultimately, this leads back to management, whether they have inculcated a culture of sustained innovation and de-centralised decision making such that the company can stay on Day 1.
Spend more time evaluating mgmt, culture and what makes for a really durable compounding company
Spend more time evaluating mgmt, culture and what makes for a really durable compounding company
