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Deep software moats have eight layers
Shallow Versus Deep Moats
When AI worries hit software stocks, one investment team took apart what makes a software moat shallow or deep. It found eight layers. The first is the interface, and a shallow, horizontal product with little beyond a good interface is the easiest for AI to imitate. Vertical, deep software was what they wanted to own.
The Eight Layers
The next layers are motion, how deeply the software is embedded in the way the enterprise runs, and memory, how much institutional memory is wrapped up in it. Orchestration covers how many partners and APIs connect to it, and resilience covers security and how safely the data is stored. Trust means a person is on the other end of the phone when something goes wrong. The last two are how capital is allocated across the software business and how it learns inside the flywheel of building software.
Where IMMORTAL Came From
The first letters spell IMMORTAL, a memory tool for applying the framework again and again. It came from a visit to the new museum in Cairo, where King Tut's burial arrived as a nest of many caskets protecting the body. Those layers are what let a business endure.
Why do switching costs protect enterprise software?
Switching costs are one of the classic barriers in competitive strategy. Michael Porter listed them among the barriers to entry in his 1979 Harvard Business Review article on the five competitive forces. For software built into payroll, inventory, or compliance, switching means migrating data and retraining staff while operations keep running. Porter's list also named capital requirements and access to distribution channels.
Why was Tutankhamun buried in nested coffins?
Howard Carter's team found the tomb in 1922 and discovered the king's mummy inside three nested coffins, set in a stone sarcophagus and surrounded by four gilded wooden shrines. The innermost coffin is solid gold and weighs about 110 kilograms. Egyptians believed the body had to be preserved for the spirit to live on in the afterlife.
Why do acronyms help memory?
Psychologist George Miller argued in 1956 that short-term memory holds about seven chunks of information, give or take two. A word like IMMORTAL packs eight separate ideas into one familiar chunk. The colors of the rainbow are commonly remembered through the name ROY G. BIV.
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