"The things to look for in order to determine whether a company has a moat are the following: -          - **Low Cost Provider** – If a company can **continually be the cheapest** company offering a satisfying product to customers, there is no need for us to switch to something else. - **High Switching Costs** – This is Microsoft’s moat. As long as most people are using and used to their operating system, **it will be costly to switch to something else**. - **The Network Effect** – When a company manages to build a network effect that makes it an advantage over all other infrastructure and where **the costs of building a new network would be extreme**, we could consider the business as having a large moat. Examples of such a network effect are Amazon and Facebook. - **Strong Brand Name** – Apple has managed to create an extremely strong brand to which **customers attach a lot of positive emotions**. This allows the company to have higher margins than the competition and shows the power of the brand. In an environment where all things are available at extremely low prices, brand strength is something that will just increase in importance. - **Reputation** – A **reputation for quality** goes far in today’s world. When combined with customer awareness and a leading industry position, a company can become synonymous for the product. Just think of Google, Band-Aid, Post-it or Kleenex. - **Economies of scale** – Some operations require **huge upfront investments where the pay-off comes from future low-cost offerings or production**. Once such a business is in operation, competitors know that building a similar operation would eat out all the profits in the sector and therefore desist from investing. A simple example is a utility. Nobody is going to build a second electricity grid for the same area. - **Government Protection** – This is perhaps the trickiest of all moat criteria mentioned up till now, but **if a business can enjoy government protection, there is really not much others can do**. However, in today’s global business environment, fewer and fewer companies have a monopoly or any kind of protection from governments. On the contrary, governments are doing their best to make it difficult for companies to become bigger, an important risk especially for today’s tech companies." ([Location 3084](https://readwise.io/to_kindle?action=open&asin=B07CNFFJ9J&location=3084)) --- **Tags** -- [[quotes]], [[competitive-advantage]], [[value-investing]], [[reputation]], [[branding]], [[economies-of-scale]], [[switching-costs]] **Source** -- [[202506221723 - LN - Modern Value Investing]]