In the world of business, competition is fierce, and every company wants to gain an edge over its rivals. A key way to achieve this is by building a business moat, a competitive advantage that sets a company apart from its competitors. Companies can build moats in various ways, such as strengthening their brands, achieving economies of scale, or lobbying for special status from the government. Once a company has built a moat, it can receive numerous benefits, including customer loyalty, pricing power, and legal protections. However, not all moats are created equal, and the most durable ones are built on different types of advantages, such as network effects, data, and repeat engagement within a product ecosystem.
In this article, we’ll explore how the biggest tech companies have built and defended their moats, and what other companies can learn from their strategies.
1. How Amazon grew into a trillion-dollar business
Amazon’s dominant position in the world of online retail can be attributed to a range of competitive advantages. However, the key to revenue Amazon revenue growth lies in its ability to leverage its wide network through the aggregation of suppliers and customers in its marketplace.
By recognizing early on that a larger network of suppliers and customers would enable it to offer lower prices, Amazon was able to attract more customers, which in turn drew more sellers to its platform. This created a virtuous cycle of growth that has helped Amazon expand into new verticals and even compete with its marketplace.
Today, Amazon Web Services (AWS) is the company’s third-largest source of revenue, providing a significant boost to its computing power and helping to reduce unit costs. We will discuss more on AWS in the fourth point.
With its profits, Amazon continues to invest in lowering prices, improving supply, and enhancing the customer experience – all in service of maintaining its position as the largest online retailer in the world.
2. Revenue growth of Google in the first five years
Google’s success can be attributed to its ability to leverage its expertise in search technology to build a powerful data moat. By revolutionizing web search, Google was able to disrupt a range of other services and gather vast amounts of data. This data, in turn, has enabled the company to establish a durable competitive advantage in advertising.
With over 8 billion daily searches, Google’s popularity as a search engine is unparalleled, and advertisers are attracted to the platform because many searches are made with the intent to purchase a product or service. Google had a 28.8% share of all US digital advertising revenue in 2022, according to Insider Intelligence. This dominance is underpinned by Google’s ability to constantly acquire new data and improve its search algorithms, which has helped the company build further moats in areas like transportation and shopping.
By layering search information with other data sources, such as mobile location data, Google has been able to personalize search results and offer a superior user experience. This level of personalization has made it difficult for users to switch to other providers, further strengthening Google’s position in the market.
3. The growth of Meta (formerly Facebook)
Facebook, now known as Meta following a rebranding in 2021, has become one of the fastest-growing tech companies in history by leveraging the power of the social graph to build a deep moat based on network effects. Initially, Facebook lacked a compelling use case for individual users, but as the network grew, so did its value.
By layering more and more features on top of its social register over time, Facebook was able to gain control of a durable competitive advantage. Photos, tagging functionality, groups, messenger, and other features created viral value for users and served as triggers for bringing new people into the ecosystem.
As Facebook acquired other properties such as Instagram, it continued to leverage the social graph to build out users’ networks of friends and followers, making it increasingly difficult for users to leave the platform. Through its dedication to data, Facebook has built a hyper-durable competitive advantage that is based on its control of the social graph.
Meta has been growing at a considerable pace and it registered a quarterly revenue of $32.17 billion at the end of Q4 2022 and annual revenue of $116.61 billion in 2022.
4. How AWS became the most widely used cloud service provider
Amazon Web Services (AWS) established an unparalleled economy of scale. AWS took an early lead in the cloud platform race, launching publicly in 2006, two years before Google’s competing Cloud and four years before Microsoft launched Azure.
AWS’s early start has paid off, and today, around one-third of internet activity occurs on AWS-hosted sites, with estimates suggesting the service could generate up to $100B in revenue in 2023.
The initial concept behind AWS was to simplify and reduce the cost of constructing a website or internet service by handling all the backend infrastructure and server-related tasks, including image and video storage and make it accessible to anyone who wanted to create an online presence. AWS’s business model thrives on scale, with more servers under Amazon’s control leading to cheaper computing and storage sold to customers.
As the business expanded, it offered a growing number of services, with over 200+ AWS products available, from analytics and augmented/virtual reality to security, machine learning, and robotics. Customers can easily access and integrate these services, thanks to their existing stack on Amazon.
While Google and Microsoft can compete on price, they cannot offer the same volume of easily integrated and reliable services. Being low cost and high capability gives Amazon a significant competitive edge, especially in a growing industry. In 2022, Amazon further expanded its cloud advantage with a market share of 34%, compared to 21% for Microsoft’s Azure and 11% for Google Cloud.
At present, 47% of organizations use AWS for running significant workloads, which is more than the demand for Azure and Google Cloud Platform, reveals a report by Flexera.
AWS is helping Amazon revenue growth a lot when it comes to overall profitability. AWS grew sales in 2022 much more than Amazon did, with a total annual revenue of $80.1 billion. That is 29% more than what was made in 2021.
Source: CB Insights