The Moat

My favourite concept for digital strategy comes from Warren Buffet. Buffet talks about looking for "Economic Castles with Wide Moats". This is something that makes it very hard and undesirable for anyone who wants to compete with you to do so.

In fact, the only way for them to do so is to change the game and disrupt the industry entirely (earthquakes in our analogy). Think Yellow Pages before the internet. They had a wide moat around their business that pretty much locked everyone else out of the market and allowed them to gouge command higher profits.

That was until the game-changing internet came along and disrupted everything. The Yellow Pages was too slow to change and too used to getting a lot of money without providing much real value. Despite all that they had a digital moat that was was virtually impenetrable from any attack by competitors.

So what does a digital moat consist of?

Elements of Digital Moats

There are several elements wide digital moats can be made of (similar to economic moat types in article cited above):

• Barrier to entry (takes time to create content and rank on Google)
• Network effect (Trying to get your friends to switch from Facebook to a new social network)
• Brand equity (usually offline, like Porsche)
• 3Ps: Patents, personalities, proprietary (iPhone, Tim Ferriss, exclusive distribution agreement)
• Monopoly (online monopolies are harder to maintain but still exist, like Google itself)

Moats in Digital Marketing

Organic

In digital an example of a moat is a lot organic traffic coming from white hat techniques. Search engines are difficult to rank in and often need a lot of high quality content (and time) to build traction.

That's why most companies avoid it (because it requires several quarters of investment for small upfront returns) despite the fact that done properly it's the best long term digital strategy around for content or information based sites.

PPC

Instead of organic most companies go for PPC which offers great instant returns but delivers a very narrow moat. Someone with deeper pockets can outspend you tomorrow. This goes for most advertising.

Affiliate

Affiliate marketing is not something I know much about but I think it depends on how you go about it as to whether or not you have a moat. Essentially you need to make it difficult or undesirable for your affiliates to switch in order for it to be considered a moat.

eDM

For email marketing it depends on the quality of your list if you have a wide or narrow moat and in that sense it has commonalities with below comments about communities.

Social Media and Communities

Social media marketing is an interesting one. I'm going to differentiate here between a genuine community and social media vanity metrics. There is no greater moat than an engaged online community who cares.

The kicker is that these communities often generate lots of quality content that search engines love. Think of any big forum site in a niche you love and now think of how you would try and compete with them and you'll see what I mean.

Social media vanity metrics like Facebook likes and Twitter followers are often (but not always) symptoms of a great online community but those metrics could also be found in campaigns or online communities that deliver no value at all to the company in a business sense.

Moats Create Moats & Money

It's worth observing that the widest moats create more moats. Google has about the widest moat online. It's so wide that it has created two moats around it: organic search and PPC. The moat is so wide that most people don't even see it as a moat: it looks like an ocean and it's unthinkable to attack the island on the other side of it.

Google's moat is also so strong that it makes companies feel safe building their moats on top of it (which further reinforces Google's moat).

Wide moats lead to more revenue streams. Sites with big communities and lots of organic traffic can sell ads based on pageviews. The same goes for quality mailing lists. Done properly and the people on your site begin building the moat for you.

Digitally speaking you want your moat to be so wide and the castle within it so amazing that you become Singapore Island or Manhattan (or even Australia). The opposite would be investing in narrow moats like advertising for the long term and not having an intrinsic value or attraction - like Dubai. Build the former not the latter.