Different businesses come with different moats. Some have brands, some have patents, some have toll roads like a moat, and another type of moat is the network effect. This is still a mystery to me. But, Microsoft, Facebook, Twitter, TikTok, etc social networking companies do have a networking moat.
I will try to give you some examples of networking moat, although I am not on TikTok, so I would not be able to speak for it, but I am regular on Facebook, Twitter, Instagram, WhatsApp, Twitter, etc.
When I was in college, Orkut was really popular. And I was on Orkut, mostly because all my friends and family were on that networking site. Google used to own it, and as Facebook took over, google had killed it. Orkut was mainly popular in Brazil and India, MySpace used to popular in the USA and some other countries.
I believe I signed up for Facebook in 2007 and then was not regular on it. I signed up for MySpace too, then again, I barely logged in. Here comes the networking effect. Although there were other alternatives to Orkut, I did not use those platforms, because all my friends and family were on Orkut.
When I try to think about Orkut, I do not see much difference with Facebook. Honestly, there is no feature Facebook offers to me that makes it more useful than Orkut was or it could have been. But, in 2009, Facebook became very popular, Not sure if it was some great feature or something else. Personally, one of my coworkers asked me to use Facebook because according to him Facebook had more good-looking single girls. Well, the network effect again. Who knew if those were fake profiles or genuine, but Facebook was gaining users because it already had some users.
Gradually all my friends and even my parents and relatives joined Facebook. Mainly because everyone else was on Facebook. And maybe because it lets you stalk the friend or relative anonymously. Point is, it is a networking effect. It is like wildfire, more and more user come onboard because others are there. And the networking moat gets wider.
Facebook has now created an ecosystem. Although, you may find it difficult to understand like me, why do they need both Facebook Messenger and WhatsApp? Facebook makes it incredibly hard for a layman to share something outside of the Facebook ecosystem. IF I am not clear, try sharing a post from the Facebook wall to Telegram. It lets you share content within the apps owned by Facebook.
Not only that, not Facebook is more than what it used to be( as a standalone app). You can sell stuff. And a huge number of users makes it a huge potential marketplace. The dating feature is another addition, As they improve the algorithm, it will probably be the biggest dating site.
Then the personal pages etc, are very useful for small businesses. I believe in a few years, they can make these so feature-rich that small businesses would not need a website anymore. That remains to be seen.
While Facebook tries to make itself useful and tries to retain users, you got to wonder, why is it trying so hard? Actually, When Zuckerberg told Congress that Facebook does not feel like a monopoly, I think he was honest. Google tried hard with google Plus, Orkut the person who originally made Orkut, tried launching another social networking site, and now I saw someone else is trying to make a kinder version of Facebook. That means Facebook has competition.
When Facebook was launched it did not try to be MySpace or Orkut. But most of the current social networking sites are trying to next Facebook, which tells you the networking effect is working really well for Facebook and the competitors are falling flat on their servers :P.
So, the point I am trying to make Is although I realize that scrolling through the Facebook timeline is a waste of time, I am a human being, and “monkey see, monkey do” or social proof or fear of missing out makes me keep the app installed, helping them to deepen the networking moat.
Although the youngest generation is more into TikTok, Snapchat, Instagram. And that is why Facebook is trying to buy all the competitors. Startups and young firms do not have the cash flow that Facebook has, hence it is easier for Facebook to kill the competition. And you see how networking moat is creating monopoly?
Twitter and Instagram do appeal to people like for a different reason. There is a lot of journalists and brands available on Twitter, and I can get news and reach out and engage with brands there. And although I am not an avid Insta user, I feel people follow others who are some sort of celebrity. Anyway, and these businesses are valued by the number of users they have on the platform. Although I do not understand how a User in India or Kenya is valued at par with a user from the USA or UK. But that is how it is done, as far as I know. Anyway, this post was about explaining networking moat and not about how to value these platforms.
And yes you can buy these business because most of them are listed. In case you do not have a brokerage account, open one with Zerodha.