Moat and Monopoly – 2
Jasper Han writes: “Network effect, brand, and replacement costs are moats…[Also], for SaaS organizations, data is a critical way of increasing the replacement cost. Customers’ data created by your SaaS offerings is a valuable asset. Increase replacement costs by making good use of these data to provide greater value to customers… User behaviors are an unnoticed way for replacement prices to rise.”
Austin Yang discusses an ecosystem moat: “An ecosystem in SaaS is a group of related apps, 3rd party components, and content that seamlessly work together to solve user pain points. Ecosystems allow companies to better satisfy user needs and improve user experience. An ecosystem moat is a barrier that protects your product from the competition. It makes it more difficult for other companies to achieve product parity. Common levers used to build ecosystems include user-generated templates, experts, and plug-ins.”
Peter Thiel argues that a business must focus on building monopoly. He wrote in Wall Street Journal in 2014:
“Perfect competition” is considered both the ideal and the default state in Economics 101. So-called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to be made, new firms will enter the market, increase supply, drive prices down and thereby eliminate the profits that attracted them in the first place. If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.
The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.
…In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.
Tolstoy famously opens “Anna Karenina” by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: Each one earns a monopoly by solving a unique problem. All failed companies are the same: They failed to escape competition.
For Indian SaaS companies, moat and monopoly need to be the twin endgames to establish domination. Each company needs to find its own path. Netcore needs to consider a B2B loyalty program crafted around Mu (Atomic Rewards) to build the moat and monopoly.
