Enemy at the Gates
Creating Moats for Competitive Advantage
Success of many platforms could be attributed to their moats. There is an interesting scene in the movie Social Network where Mark Zuckerberg makes a pertinent remark to the Winklevoss twins in middle of a law suit deposition-
'If you guys were the inventors of Facebook, you'd have invented Facebook.'
The idea behind the arguments is very simple- starting a platform business is easy , scaling it makes all the difference. Success of Facebook spawned many copy cats across the world but none of them became “Facebook”.
Usual caveat- This newsletter is about Collecting the Dots and Connecting the Dots between seemingly unrelated themes and making sense of it. My apologies if the analysis sounds too simplistic or straightforward. Feel free to share your views in the comment section at the end of newsletter OR simply hit reply to this email. I read all the comments and try to respond to them ASAP.
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If you would like to read a summary of the 45 posts in 2020, please do read this newsletter.
DTW
During the Week, there were multiple instances of some users unable to use Whatsapp and Instagram which have 2 Billions and 1.2 Billion users respectively. It sparked another series of memes on internet and some of them were directed at users moving to alternative social media platforms. But we all know that this migration may not happen soon because like somebody remarked that “Signal is so private that at times you are the only one there”.
What makes life difficult for new comers are the moats that the incumbents have created round their businesses. Or the new comer may come with its own moats to upend the existing business environment. I have earlier discussed about the Jio Platforms upsetting the relatively cosy cart of Indian Tech-Media-Telecom business ecosystem. I wrote about scaling of Reliance Jio as a first trillion Dollar Indian company from potential and execution perspective.
Business strives an effective business strategy to accomplish twin objectives of benefits and barriers. Platforms could create barriers from Network Effects, Cost, Culture and Resources. We would concentrate on Network effects and Cost-related source of barriers/moats. Would take up culture and resources as moats in subsequent newsletter.
Network Effects- Platforms create barriers for competitors when they remove barriers to usage for their users. Every time platforms remove barriers for their users of one or more sides of their network, they create an exponentially growing network effect which could visually be seen as virtuous upward cycle- More suppliers leading to more users which ultimately attracts even more suppliers. You get the drift! This is at play in Uber, Zomato, Amazon etc where reduced barriers to sell their services or products attract scores of producers who otherwise would have stayed away.This creates more choices or even possibility of finding long tail products thus creating tremendous value for users. Once this scales , of course fed by unlimited supply of cheap risk taking Venture Capital, it becomes a Winner Takes All (WTA) scenario thus leaving no space for any other player. Platforms are able to leverage these network effects to create non-replicable ecosystems of millions of remote participants connected over internet. This certainly puts the traditional businesses at serious disadvantage while also making any me-too platforms from getting any traction in the specific and adjacent product category.
Cost-related Moats- One Jujutsu move that Amazon made was to make Amazon Web Services available for hire for any business to host their websites. This created an extraordinary situation where bringing more servers under Amazon’s control led to the decrease in its own computing and storage, and then it created an infrastructure where it could sell even cheaper computing and storage to its customers. This created tremendous barriers for businesses to leave AWS which responded by offering even more complementary services (about 140 related products).
Amazon FlyWheel - CBINSIGHTS
So, Google and Microsoft can come and compete at lower prices but can not offer the same bundle and volume of end-to-end services. No wonder, when Jeff Bezos stepped away from running Amazon as CEO , he chose Andy Jassy who was leading AWS to take charge of entire Amazon Business.
OTW
Over the Weekend, I was part of two wonderful initiatives as MountainSpeak host. As discussed in the previous newsletter on D2C brands, MountainSpeak would host D2C brands and the important ecosystem stakeholders over next few months. Our first guest was Saurav Panda, COO-Digi-Prex who spoke about journey from running a successful health start-up in Dialysis space to now managing a growing D2C brand Mars by GHC- health and wellness brand for men.
I am glad to work with good folks at BuckSpeak who also have the passion to create Spaces for long conversations. As usual, Naveen and team TRICE stepped up to encourage women entrepreneurs through a curated Kashmiri snacks platter by Keerthi Ganju, a Trice partner. You may want to watch the entire video here to get more insights on building D2C brands.
ISTD, Chandigarh chapter organised an interesting webinar session on the occasion of 'International Day for Happiness'. One of the highlight of the talk was Sachin’s explanation of GREAT DREAM Framework.
After all, our happiness results from the joy and well being of people around us. And if nothing else works, follow Hanlon's Razor which is a principle or rule of thumb that states "never attribute to malice that which is adequately explained by stupidity". Follow this for peace of mind guaranteed.
Let me leave you with a quote from HH Dalai Lama when he talks about Compassion as the Source of Happiness-
Therefore, our survival is based on hope – hope for something good: happiness. Because of that, I always conclude that the purpose of life is happiness. With hope and a happy feeling, our body feels well. Therefore, hope and happiness are positive factors for our health. Health depends on a happy state of mind.
I Love You
Shailendra
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So much to learn in every newsletter ☺️☺️
Great newsletter Sir, was right on the money!!