The moat theory mainly focuses on intangible assets, network effect of business model, user switching cost and product cost.
The first factor: intangible assets.
Intangible assets are things that cannot be simply measured by money. The most important things are brands and patents.
A good brand can make users find you more conveniently. The most extreme situation is to equate a brand with an industry, such as Google for search engines and Intel for computer chips.
Brand can not only reduce the company's marketing costs, but also help the company's products achieve higher pricing.
Patents are also moats, but it is best to take them as a dynamic indicator to see the company's ability to continuously create new patents and the strength of continuous innovation.
The second factor: the network effect of business model.
There are three situations:
1 type: scale effect, that is, the larger the scale, the higher the efficiency.
For example, the unilateral mode of * * * exclusive bicycle, the more cars a company has, the more convenient it is for users to use.
The second type: the bilateral economic model of mutual promotion, which is called bilateral economy in economics. After this bilateral model takes the lead, the bilateral model will generally have higher competition barriers than the unilateral model.
For example, bars charge girls low prices to attract female customers. After the increase of female customers, the number of male customers will also increase, and bars will charge high prices for boys. In this way, both men and women have realized their social needs, and the bar has also made money.
For example, there are drivers' needs and passengers' needs in the field of private cars. More drivers will bring more passengers and more passengers will bring more drivers.
The third type: network effect, social products are very typical, users actively spread, helping the company get new users close to zero cost. This is not just a bilateral model, but a multilateral network model. The more users, the greater the value of the network.
The third factor: the cost of user conversion.
The switching cost determines the stability of the first-Mover advantage. Needless to say, products with strong network effects, such as WeChat, have many things for users. There is also office software, which needs to be learned again from the beginning, so it will never be easily replaced.
Just like consumer goods, it is effortless to change a new product, which is why the lower the conversion cost, the more energy will be devoted to channel construction to make up for this deficiency.
The fourth factor: product cost.
Facing the same industrial environment, cost leadership has always been one of the effective means of competition. Cost leadership may come from scale effect and advanced technology, or from the company's long-term improvement and gradual construction.
Being able to have some elements in the moat is the key to a company's ultimate success. What if these so-called moats don't exist?
In fact, there is another barrier that looks a little helpless, but it is very effective-profit rate. Where there are huge profits, there must be many competitors. Therefore, instead of letting competitors carve up the market, leaders might as well take the initiative to reduce profit margins in order to gain greater scale and influence.
Give an example of Meituan and Didi:
After being in a monopoly position, Didi has not only failed to build a moat that rivals are not easy to imitate, but also achieved a high gross profit margin. This is equivalent to using a tweeter to publicize to the whole world. The market here is stupid and rich (lucrative), which leads to the merciless step of Meituan.
Assuming that Didi spends more money, makes the dispatching better, makes the map more accurate, and gives drivers more incentives, it not only builds a deeper moat, but also produces short-term financial statements, which can make potential opponents more discouraged. They will think: even the financial statements of the sole monopolist are so ugly, why bother to get involved?
Xiaomi has done a good job at this point.
Lei Jun promised all users at a press conference in a city of Xiaomi that the comprehensive net profit rate of Xiaomi hardware will never exceed 5%. This is because what Xiaomi wants in hardware is scale, user experience and moat, and low profit margin is conducive to the smooth implementation of the strategy. Although the low profit rate forms a barrier in a certain sense, it does not mean that the company must give up most of its profits to form a moat.
In reality, "genius" entrepreneurs often have "successors", that is, the front end relies on the low profit margin model, and the back end has the ability to bring out a profitable model.
For example, Xiaomi hardware can not exceed 5% profit margin, but Xiaomi's advertising, content distribution, membership fees, etc. Have super high profit margins. On the basis of a large number of hardware users, Xiaomi's overall profitability is still very strong.
The connotation of moat is far more than that, it has been in the process of dynamic development.
Tesla founder Musk dismissed the moat theory. He thinks the moat is dynamic, not for your safety.
He believes that no matter how deep the moat is, it can't stop waves of attackers. The only way is to innovate crazily and keep running forward. Tesla's crazy running posture is actually building a moat.
In addition, if we consider capital again, we will find that the capital market is booming, which will also increase the difficulty for a company to shape a moat.
In the past, it was possible for a company to enter a promising industry and grow into a great company with its craftsman style. But now, capital is no longer allowed. Once the business model is verified to be feasible, the next step is to replicate it on a large scale with capital. * * * bike-sharing is a typical example.
One thing to remember is not to assume that a company has these moats.
If you think a company's moat is a brand, it depends on whether the company's products have higher pricing and lower sales expenses than similar products.
If you think a company has scale effect, it depends on whether its revenue growth rate is faster than its cost growth rate, and whether its profit rate will increase with the increase of sales volume.
If a company's products have a multilateral network effect, usually its customers will grow faster than the industry, and the cost will be marginally reduced?
If you think that transformation is a company's barrier, it depends on whether it has high repeat purchase rate and low marketing cost.
If a company is judged to have a cost advantage, it should have a higher gross profit margin and a lower expense ratio than its competitors. Do you want to verify this?
In addition, players who actively use low profit margins to gain greater market share are worthy of attention, and it is often a short-sighted behavior to pursue profits prematurely when the barriers are unclear.
In a word, objective facts and financial data are important arguments to support the judgment of moat.