What is a Moat and How Can a Company Get One?
Humans have been fascinated by castles for millennia. Centuries ago, humans built castles to defend their land and leaders. These huge structures were made from thick stone walls and lined with places of relative safety from which to fire arrows at oncoming attackers. Today, you’re more likely to find them in fairytales, movies, and even games like Wolfenstein and Mario. These ancient fortresses are also a favourite among iGaming companies. Casinos often use themed slots alongside bonuses and promotions to help set themselves apart from their competition, and castles provide an ideal setting for these games.
But back when castles were important defensive infrastructure and not just a great place to set a movie or video game, walls and long-range pointy sticks weren’t the only forms of defense. Castles were often constructed with a moat around their perimeter. This made it more difficult for attackers as the drawbridge could be lifted to prevent entry, leaving a deep body of water between the fortress and its enemies.
Investors also like to have moats. Except these aren’t artificial streams, but rather the defenses that a business has to protect itself from its competition. A moat can be acquired from several sources.
Intangible assets prevent competitors from simply copying a company’s product or service. This could be because it has a patent, strong brand recognition, or has a reputation for quality that others can’t replicate.
In iGaming, most companies offer a similar selection of games for their customers. Therefore, dozens of different brands often use bonuses like free spins to attract new customers to their platforms. However, the companies that have managed to build moats are those that offer a unique experience through better software, stronger brand recognition, and exclusive games.
Another way to build a moat might be to find ways to lower your costs. Companies with lower overheads can pass these savings on to their customers safe in the knowledge that they won’t be triggering a price war, or if they do, that they can outlast their rivals in a race to the bottom.
Budget supermarkets like Aldi and Lidl are great examples of this. They use efficiencies like displaying products in the cardboard crates they’re shipped in to save time (and money) restocking their shelves.
Cost advantage can often come with scale. Businesses like Walmart are typically able to offer much lower prices to their customers than traditional mom-and-pop stores because their large stores, nationwide network, vertical integration, and increased buying power mean they can lower their relative overheads and get bigger discounts on stock.
Some businesses can build a moat by locking their customers into their ecosystem or product. They can do this by making it too expensive or time-consuming to switch to a competitor, creating strong loyalty in the process.
Apple is a company that has a large switching cost moat. Upgrading from one iPhone to another is quick and easy, but moving to Android can be a huge hassle that many would rather avoid.
Some business models work best at scale and some even deliver a better experience when they have more customers, making it hard for smaller alternatives to compete. This is known as the network effect.
Facebook’s moat is based primarily on the network effect. It’s a tool for sharing moments from your life with others, so it works best when all your friends and acquaintances are also using it. This makes it nearly impossible for a new social network to take Facebook’s place, since they’d be fighting against a company with a userbase that’s measured in the billions.
The same can be seen with businesses like Uber that need to reach a critical mass of riders and drivers to make the service attractive to both sides. If there is an imbalance of either, then the entire system falls apart. This makes it much harder for new ride-sharing services to step up to compete with Uber since they have to overcome the network effect.