Moat

A moat is a company's sustainable competitive advantage, something that protects its profits from being competed away by rivals. The term was popularized by Warren Buffett, who compared a strong business to a castle that needs a moat to defend it from attackers.

Moats can come from several sources. High switching costs make it painful or expensive for customers to leave, common in enterprise software. Network effects make a product more valuable as more people use it, common in social platforms and marketplaces. Brand strength lets a company charge more for an equivalent product. Scale advantages let larger companies operate more cheaply than smaller rivals can match.

A company with a wide, durable moat can sustain high margins for years without losing customers to cheaper competitors. A company with no moat tends to see its margins erode over time, as competitors copy what works and compete on price.