Amazon’s Moat

Scott Francis
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Quartz included a great article a few weeks ago on Amazon Prime – the retail world’s most unbreachable “moat”.  In general, reading about Amazon’s business strategy is an interesting proposition.  And even if we can’t all run a retail juggernaut I always look for whether we can apply some of the smart things Amazon does to our own business at a smaller scale.

What’s a moat?  Warren Buffet describes it as “a business advantage that allows a company to keep its competitors at bay for extended periods.”

Why is Prime a moat?

  • It’s expensive to offer the service – it isn’t cheap to build a competitor
  • It’s a great value to customers – therefore, little to no advertising required to sell it
  • Prime customers spend twice as much as non-Prime customers
  • It allows for free “attached” services that augment the value of Prime and make it stickier
  • Amazon reinvests profits into improving the moat – they don’t sit on their laurels and count their profits.

In the past, I’ve often though of this as taking advantage of your unfair advantages.  That you take time to discover them, then do your best to leverage them.  But the moat is another way to think about your business opportunities.  When you’re looking at your own business, think about building a moat.

  • Don’t just rake in the profits – invest them in your business.  The company that doesn’t invest profits is the company that is in constant existential threat.
  • Look for the investments that you can make that will result in differentiated products or services.
  • Find the offerings that are difficult or expensive for your competitors to replicate.  The more daunting or complicated the product or service, the better.
  • Augment the value of your core offering with free add-ons that can drive utilization upward.

If you don’t know what your moat is, it might be time to start rethinking your business.

 

 

 

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