Finding the Way to AI: The Moat
By Ben Dyer
Investopedia says the term “economic moat,” popularized by Warren Buffett, refers to a business’s ability to maintain advantages over its competitors in order to protect its long-term profits and market share. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. The first command that arises from investors when meeting the provider of a new AI product or service is “explain your moat.” “Hello” may actually trail behind in the conversation.
Using AI tools like ChatGPT is a great way to get a list of moat makers. I started with a detailed list as my outline for this essay and cherry picked and tailored a few for your consideration.
1. Proprietary data: AI depends on datasets. If your business has unique, proprietary data, you absolutely want to build on that. Just knocking out a concept using standard ChatGPT and its massive datasets throws you into the ocean with the multitudes of potential competitors. You put yourself in the experimental category and will lose any grip on controlling your work to your lasting advantage. Outsiders may even be able to access your precious data.
2. Advanced technology: Invest in innovative machine learning models and algorithms and keep investing in R&D to stay ahead. The evolutionary speed of AI is such that you can never get complacent relative to all your potential competitors. A brilliant idea you have today may be someone else’s tomorrow if you don’t seize the moment of opportunity.
3. Network effects: Be mindful of Metcalfe’s Law from 1980 that the value of a network increases with the square of the number of users. Although he was originally focused on telecom nodes, the principal applies equally to members of any AI user group. The faster you recruit participants, the more value for all and the stronger the moat that you will create. You quickly reap the advantages of high switching costs that keep your customers locked into your ecosystem and not susceptible to being lured away by new entrants in your field.
4. Patents and IP: Do what you can to protect your moat with patents, trademarks, and copyrights. However, in my experience in the general software world, I found that the patent process seldom delivered protection before the subject product became obsolete. Clearly the visual nature of generative AI solutions gives rise to a host of copyright possibilities, as evidenced in particular by the recent Hollywood writers’ strike. But be careful with all your data sources to avoid misappropriating someone else’s data.
5. Industry expertise: When your company’s expertise in your chosen industry is already widely recognized, you have a running start toward capitalizing on that in your AI moat. In such complicated use cases as pharmaceuticals, supply chain and logistics, manufacturing at scale, and highly branded consumer goods, the fact that your business is a trusted partner for an established customer base is a priceless advantage.
One might correctly infer that scale is ultimately the common thread for all these moat components. If you want AI to make money for your business, tackle the biggest ideas first. You can build transformative solutions for your customers, your workforce, and your infrastructure. The AI world is open now to be your ticket for lasting business leadership.
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Ben Dyer is best known as the founding CEO of Peachtree Software and has been responsible for numerous startups in both Atlanta and Austin ranging from technology to financial services. He is currently an Entrepreneur-in-Residence at the ATDC at Georgia Tech and spent 7 years in starting in 2011 in similar roles at the University of Texas at Austin. He is a prolific writer and has written many hundreds of blog posts on entrepreneurial topics. Among numerous honors, he is a member of the Georgia Technology Hall of Fame.