[hollerith]

Warren Buffett only invests in companies with what he calls a "moat" that make it hard for any other company to offer a similar product or service.

Apple's moat, for example, is its institutional knowledge of design and maybe its relationships with its suppliers, e.g., their deal with TSMC to lock up most of TSMC's capacity on the 5-nm node. Another moat Apple has is consumers who do not like engaging in sysadmin battles with their consumer electronics. One of my friends, a 79-year-old woman, for example, told me once that she wouldn't consider buying a computer from any company except Apple. (I could probably induce her to change her mind on that, but it would take persistence and patient explanation on my part, and also I'm probably the only person who could change it.) The main way Apple has maintained (for 38 years!) its dominance in institutional knowledge of design is probably the fact that most of the young talented designers want to work for Apple (partly because most of the people willing to pay extra from good design in consumer electronics buy from Apple).

Google Search's moat seems to be institutional knowledge on how to build a good search engine and access to data on what people search for and which search results they click. Strengthening the latter moat is the reason they're so interesting in having all traffic from the consumer's browser encrypted: namely, so that the consumer's ISP cannot sell data on the consumer's interactions with Google's search engine to any competing search engines. Another moat Google has is that most consumers will not take the trouble to change the default choice of the search engine used when the consumer types a non-URL into the location bar of the browser. Strengthening that moat explains Google's willingness to pay Apple and Mozilla to be the default search engine and Google's interest in giving away Chrome and Android.

Microsoft's moat: practically every organization uses computers and needs employees who know how to use those computers. They mostly choose Windows and Office because that is what most prospective employees know. In turn, when a young person improves his or her attractiveness to prospective employers by learning computer skills, they usually choose to learn Windows and Office because that is what is running on the computers of prospective employers.

[skinnymuch]

The three companies alone do have these moats but are outliers of outliers. Stuff we haven’t seen much of before. Combined they are worth $5.5T. All US public companies are worth $40T. The Nasdaq that they are all in has a total market cap of all companies of under $20T. Besides the two mentioned exchanges, Shanghai, and Euronext, these three companies alone might come up 5th in total market cap. They are right alongside Tokyo and Shenzen. Definitely dwarf Hong Kong and LSE.

The other big moats off the top of my head aren’t as strong but ASML, TSMC (for now), Tencent, Baidu, Yandex, Kakao Daum, are all worthy but still peanuts comparatively. I’m sure some Indian companies too.

[hollerith]

Facebook has a sizable moat: it is easy for me to join a new social network, but it is kind of pointless unless everyone I want to communicate with also joins, and it is hard to motivate them to do so. The fact that Facebook was not the first social network is evidence that that kind of moat can be crossed, but still it would be hard. And if a company starts getting traction, FB will probably offer to acquire it like they did Instagram and WhatsApp (which never was a social network, but might've become one by gradually adding features if it hadn't been acquired).

But I agree with your point: it is really hard for a new company to create a large revenue stream with a strong moat around it.