The Business Engineer

The Business Engineer

Competitive Moating in AI

Gennaro Cuofano's avatar
Gennaro Cuofano
Feb 13, 2025
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In a tech-driven business world, the tech side becomes a moat only when it translates into a brand, distribution, and operational advantage.

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The race between ChatGPT and DeepSeep has got a lot of short-term buzz. Now, it needs to translate that into long-term branding and distribution advantage via a vertical infrastructure that supports that to lock in future market shares.

That means the tech side becomes the instrument to gain market shares via brand, distribution, and a vertical infrastructure able to sustain a larger and larger scaling advantage.

If we were to translate business competition into a sport made of “competitive moating,” that can be all translated in this graphic below.

For a tech moat to become a lasting advantage, it must be translated via efficiency, branding, and distribution into locked-in market shares of the future market. That’s the bet.

In AI Moats: Part One, I’ve explained the process of mapping moats out.

AI Moats: Part One

AI Moats: Part One

Gennaro Cuofano
·
Feb 6
Read full story

Now, let’s start from there to see how these temporary tech advantages are translated into business moats.

Mapping The Moats Out

As a reminder, these are the key elements to look out for when building a strategic moat.

Core Layer: Speed & Agility (Green Circle)

  • Represents low barriers to entry and rapid prototyping.

  • AI apps can be built and tested in under 24 hours using available AI models and APIs.

  • Key elements:

    • Rapid Prototyping (24h cycles) → Fast development cycles.

    • Rapid Distribution → Ability to quickly reach users.

    • Vertical Infrastructure → Ensures early scalability.

    • Network Effects → More users enhance the AI system.

Middle Layer: Operational Advantage (Orange Circle)

  • Represents cost efficiency, infrastructure leverage, and capital deployment.

  • AI model competition ensures lower operational costs.

  • Key elements:

    • Cost Efficiency → Decreasing API costs makes AI development cheaper.

    • Model Flexibility → The ability to integrate multiple AI models.

    • Capital Deployment → AI startups require efficient funding strategies.

Outer Layer: Strategic Moat (Purple Circle)

  • Represents long-term defensibility through differentiation.

  • AI apps achieve a lasting advantage by focusing on:

    • Model Flexibility → Leveraging multiple AI models optimally.

    • Brand Strength → Creating a recognizable, differentiated AI product.

    • Network Effects → Continuous improvement as more users join.

    • Vertical Depth → Deep specialization in a specific domain.

This map is not static but dynamic and is the direction you want to look at.

Let’s go back not to translating these into a lasting advantage.

Translating Tech Edge Into A Lasting Advantage

The key take here is that technical capabilities (Temporary Tech Moats) transform into Market Power through strategic value delivery (Translation). This process is essential for companies to sustain a competitive advantage.

A Tech Moat represents technical capabilities—unique innovations, proprietary algorithms, or AI advancements.

However, having strong technology alone is insufficient; it must be effectively translated into market impact.

That translation bridges between technical strength and market dominance. This process relies on three core components:

  • Efficiency – How well does the technology improve cost, speed, or performance? And are we building a vertical infrastructure to sustain that advantage and make our final product cheaper and better as it scales?

  • Distribution – How widely and effectively does the technology reach users?

  • Brand – How does the company position itself in the market and build recognition?

Successful translation of a tech moat results in Market Power through:

  • Market Share – Gaining and retaining users/customers.

  • Recognition – Establishing credibility and differentiation.

  • Authority – Becoming the industry leader in a particular domain.

Even the most advanced technology risks becoming irrelevant or commoditized without effective translation.

Companies that master this framework turn technological innovation into sustainable competitive advantage and long-term market leadership.

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