Comment by Symmetry
8 years ago
The ideas are more different than the analogies are. A moat would be things like patents, data, expertise, etc that a competitor would need to get to match you and which are hard to develop. That doesn't have anything to do with the profitability of nearby market niches.
Exactly! A moat is less efficient than a desert. A moat is highly susceptible to niche entrants who might expand into your main market after, but a desert leaves no to little money on the table for anyone else.
You are correct, if you believe competition in the marketplace (or the battlefield) is linear -- where enemies/competitors lunge at you in turns, one at a time.
If you do not believe that competition is linear, then it cannot be true by any stretch of the imagination that a moat is "less efficient" than a desert. A moat/desert/<insert metaphor> is only one of many tactics employed to win battles.
IOW, it is not a strategy as you seem to be implying with this reply.
> it cannot be true by any stretch of the imagination that a moat is "less efficient" than a desert
Nope, a moat protects a profit center by creating barriers to entry in the form of competitive advantages.
A desert kills profit centers that could be used to attack your own profit center. Competitors can't leverage neighbor markets as an entry point, they can only attack your core business directly.
You can have both, but a desert end up being more efficient for the simple fact that it reduces the total amount of profit to be had in the market, draining competitors of resources.
The desert of profitability is the Russian winter of business models (with all the "Russian winter" caveats, so let's not go down the route of discussing if it was actually the winter or German lack of fuel, or Napoleon's whatever): you don't need strong moats when enemies die before reaching your walls.
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The problem with this argument is that it is a gross simplification of reality.
Terms like "market", "nearby market", "niche" etc are all abstractions the same way a map is an abstraction of an actual territory. They help us reason clearly but they should not be used as a substitute for the real thing ala "the map is not the territory".
A "desert of profitability" is essentially a battle tactic -- a tactic where you delay the use of your moat (fortress, trench etc) by igniting trouble elsewhere, usually in neighboring lands that enemies must traverse before the war reaches your own land.
IOW, it is a tactic used in conjunction with other tactics, it is not a strategy; all it does is buy you time. Eventually, the technology landscape will shift and such economic moats, no matter how deep, will lose their relevance.