A moat offers some trade-offs to other forms of defenses; while it takes foresight and planning to build, it doesn’t require significant reinvestment every year. With the right approach, businesses can fortify their positions within the market with one-time investments and save themselves from recurring, costly advertising expenses.
Google and Nike’s Successes
Moat building is not new among technology giants. Google, for example, built its own web browser (Chrome) after years of reliance on a $100M/yr advertising deal with Mozilla. Google further defended its core economic castle – advertising – by creating a free OS (Android) that would guarantee a wide and devoted audience. Google engages in these initiatives to protect its own long-term interests and prevent rival companies such as Apple or Microsoft from cutting off the air to the mobile search economy.
Nike has experienced similar success with its moat-building strategies through the 2008 introduction of Nike+iPod for the Gym. This application made it possible for users to plug their iPods into compatible gym cardio equipment to both play music and monitor exercise performance. Users are then able to transfer this information to their computers where they can share it with others and manage their workouts.
By March 2009, leading fitness equipment manufacturers such as Life Fitness, Technogym and Precor had all begun shipping Nike compatible hardware.
In creating a new position within the market, Nike forced dependent companies to follow their lead.
Already, this application has helped users track over 350 million miles and solidified Nike’s position as a front-runner in this new industry.
The Nike+ moat is undoubtedly one of the strongest yet. If Nike hadn’t invested in this technology, the company instead might have spent a significant portion of its $2B marketing budget to enter into an advertising/sponsoring relationship with a fitness tracking website like Runkeeper. How long, then, would it have been until RunKeeper launched its own line of running gear? In this situation, Nike would have fueled future competitors by pumping advertising dollars into their accounts.
Instead, Nike has established a digital community that measures its success in users rather than passive observers. This community will continue to grow organically every year and only increase the quality of every user’s running experience. Nike+ is the moat with which Nike can defends its dominant position within the running and fitness community.
A Community of Active Users
Your brand can similarly leverage mobile, social and cloud technologies to secure its position in the market. Over the past few months, we have seen startups like Hipstamatic, Instagram, GroupMe, Beluga, and Kik create user communities of over 1 million with less than $1M in funding apiece.
Let’s examine Hipstamatic’s success from the vantage point of a Kodak marketer. Hipstamatic augments the iPhone camera experience by providing virtual film and lenses through In-App purchasing. While Kodak may see this as an opportunity to purchase advertising space or to sponsor Hipstamatic ‘virtual films’ among a targeted audience, the more intelligent long-term approach for Kodak would be to either acquire Hipstamatic or create its own mobile application for virtual photography and give the app and the filters away for free. Were Kodak to build a sophisticated, usable product, they could out-maneuver Hipstamatic by leveraging their superior brand recognition and deeper pockets.
With a product investment of $1-3M, Kodak could build and secure a community of active users at just a fraction of the cost of its media budget. Contrast that to the $50M that might otherwise be spent on ad impressions alone.
A relatively small product investment could result in a community in excess of a million loyal users with whom Kodak can cultivate a long-term relationship.
The value of this strategy is two-fold. First, the application enables an army of brand advocates, mavens who can’t stop telling their friends about the product. Second, Kodak is now able to collect a massive amount of valuable data – names, emails, addresses as well as behavioral data that tell a story about their most loyal customers.
Building a strong digital community around photo creation, editing, and sharing is a great way for Kodak to create their moat, but they are not the only ones who can benefit from digital community-building. Marketers should consider investing a fraction of their budgets to generate digital communities like Nike+ that leverage mobile, social and cloud. A strategic moat could provide key benefits that will save a fortune and drive profits for their companies in the long- term.