There are plenty of companies that don't truly have a unique identity but get along just fine, but they also don't have competitive moats. They're indistinct, they're doing what others are doing and have done before them. They're fine, but they're not living the drawbridge life, right?
To have a competitive moat is to have something distinct that sets you apart, and sometimes it takes a lot of soul-searching on the part of the company's leadership to figure out what that is or what it should be.
Common types of competitive moats
As stated earlier, there are many different types of competitive moats, but they tend to fall within a few categories.
Networking moats
Networking moats speak to who you know and the networks you've built to protect your service offering. Very large companies often have networking moats, whether those are professional networks, networks of vendors such as Airbnb (ABNB -0.15%), or actual networks of information that no one else has.
Cost moats
Cost moats refer to different cost-related protections. Obviously, consistent price advantage is a huge moat for a lot of companies, and this is usually achieved with economies of scale. But cost moats can also speak to switching costs, which can create an environment where it puts a customer at a disadvantage to switch from your company to a competitor.
For example, when smartphones were still relatively new, Microsoft (MSFT +1.06%) had their own operating system for phones, and anyone who chose a Microsoft phone was often locked out of popular apps. There was a distinct disadvantage to switching to a Microsoft phone from an Apple (AAPL -0.59%) iPhone for this reason.
Cultural moats
Cultural moats are more about company culture and deeply understood brand identity. Companies like Patagonia and Starbucks (SBUX -0.99%) are household names, but they're also cultural icons that really understand their customers -- and their customers resonate with the brand as a part of their own identity. This can be due to a quirky company that goes viral and then sticks, or due to a more traditional means of becoming a cultural icon through generations of innovation and use.