The Distribution moat
What is a moat?
A moat is a distinct advantage that a company has over its competitors. E.g., Intellectual Properties, Brand name. The moat helps keep competitors at bay and makes it harder for new companies to enter the market. Let us see three companies which use distribution as moat.
- Twitter, Clubhouse and Substack
- Apple and Tile
- Multi Product Vendor ( Zoho, MS, Salesforce ) vs Single Product Leaders
Twitter, Clubhouse and Substack
Twitter — A social networking platform where one can post a message ( tweet ) containing only 280 characters. ( Practise tweeting for effective and precise communication ). Like any social networking platform, users can follow each other and can have followers for their tweets.
March 2020 — An audio-only chat room app called Clubhouse was launched. You can create a room, add speakers and a clubhouse user can drop in to listen to the speakers. The user could leave quietly any point of time from a room and drop in another room. It first launched in iOS and was invitation-only.
Late 2020s — In the late 2020s, a large number of journalists and reporters started using a platform called Substack. Substack is platform for creating newsletters and monetize them through subscriptions.
Clubhouse and Substack both saw an increase in usage and found the Product Market Fit.
Early 2021 — Twitter launches Twitter spaces which is same as chat rooms in Clubhouse. Twitter launched Spaces in both iOS and Android. A long time twitter user with many followers was able to host a audio chat room without moving to an another platform where he has to build his followers from scratch. You could sell tickets for your spaces too.
Clubhouse haven’t launched on Android yet. Clubhouse saw downfall in the number of downloads.
Early 2021 — Twitter acquires newsletter platform revue. Twitter recently teased it’s newsletter subscription platform which enables a twitter user to create a newsletter and monetize it through subscription. A long time twitter user could again cater to his followers. The user need not go to separate platform, gather followers and find distribution.
Apple and Tile
Apple launched Airtags in early 2021. Apple Airtags are an accessory that can be attached to any item to locate it if lost/misplaced. Guess who was popular before Airtags? Yeah, it was Tile. Even if there was someone better/popular than Tile, the launch of Airtags would create a dent in their business. Why? Because, Apple has distribution and since it owns the entire stack i.e., Hardware and Software it is able to give the users seamless and superior experience.
Multi Product Vendor ( Zoho, MS, Salesforce ) vs Single Product Leaders
Multi Product vendors like Zoho, MS, Salesforce have flagship products like CRM, Office suite and launch many other products which later become flagship products.
These companies use the customers of their initial flagship products and cross-sell other products to the flagship customers. Over time, all the products together form an ecosystem through which each app communicates seamlessly with each other. Every business needs software for Product development management, Communication and Collaboration, Human resource management and Finance management. So, over time a business which needs all the above mentioned softwares come into the ecosystem thereby leaving a dent in the Single Product Leaders.
How to create distribution moat?
Start early and Just play the long game. Start vertically and expand horizontally as you grow.
Creating a business is hard. Creating a defensible business is harder.
Guess, who has the biggest distribution moat?
A twitter user ( Creator ) creates a newsletter and sells for $10 per month. You have to pay 30% i.e., 3$ to Apple / Google. The creator and twitter have to split the remaining 7$. Let’s say, twitter takes 20% of the $7.i.e., $1.4.
So, Creator gets $5.6. Twitter gets $1.4. Apple/Google who are just a distribution platform and having contributed nothing / added value to the product gets $3. Let that sink in!!!
