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Tower and Moat

Establishing a dominant position in a future market (the Tower) and building defensive barriers (the Moat) to prevent competition.

"Dominating a future position and prevent future competitors from creating any differential."

  • Simon Wardley

🤔 Explanation​

What is a Tower and Moat strategy?​

A Tower and Moat is a long-term strategy focused on identifying and dominating a future, high-value component or market (the "Tower"). The goal is to anticipate where the market is heading, build a leading position in that future state, and then construct powerful defensive barriers (the "Moat") to make it incredibly difficult for competitors to challenge that position. The Moat is often built by systematically commoditizing any adjacent, emerging differentiators, effectively removing the ground on which competitors could build a rival offering.

Why use a Tower and Moat strategy?​

This is a high-risk, high-reward strategy for achieving sustained market leadership. The primary benefits are:

  • Long-Term Dominance: If successful, it can secure a company's leadership position for many years.
  • High Profitability: Controlling a key, utility-like component of a future ecosystem can be extremely profitable.
  • Shaping the Market: The owner of the Tower can influence the direction and standards of the entire market.
  • Strong Defensibility: The Moat, built from network effects and the commoditization of complements, is very difficult for competitors to overcome.

🗺️ Real-World Examples​

Amazon Web Services (AWS)​

AWS is the canonical example. Amazon anticipated that computing infrastructure would evolve into a utility. They built a massive, scalable platform (the Tower) and then systematically built a Moat. They did this by creating a vast ecosystem of services and, crucially, by commoditizing higher-level services (e.g., databases, machine learning) that could have been points of differentiation for competitors. By offering these services cheaply, they made it uneconomical for rivals to compete on those features, forcing them to compete on the core utility, where AWS's scale is a huge advantage.

Google and Open Source AI​

A fascinating modern example is the debate around Google's AI strategy. A leaked internal Google document argued that open-source AI models were building a powerful Moat that neither Google nor OpenAI could overcome. The argument was that the open-source community was commoditizing the core AI models faster than Google could innovate, preventing Google from building a defensible "Tower" in proprietary AI. This illustrates the power of commoditization in building (or destroying) a Moat.

🚦 When to Use / When to Avoid​

🚦 Tower and Moat Strategy Self-Assessment Tool

Find out the strategic fit and organisational readiness by marking each statement as Yes/Maybe/No based on your context. Strategy Assessment Guide.

Landscape and Climate

How well does the strategy fit your context?

  • Your map shows a component in the Genesis or Custom-Built stage that you believe will become a critical utility in the future.
  • You can see a path for this component to become a central hub in a future, valuable ecosystem.
  • There are adjacent, higher-order components that could be commoditized to build a moat.
  • No competitor has yet recognized or begun to build this future Tower.

Organisational Readiness (Doctrine)

How capable is your organisation to execute the strategy?

  • We have a strong, long-term vision and the ability to make significant, sustained investments with delayed returns.
  • Our organization has the R&D capability to build the Tower and the agility to commoditize emerging threats.
  • We are skilled at building and nurturing large-scale ecosystems.
  • Our leadership has the conviction to pursue a high-risk, high-reward strategy.

Assessment and Recommendation

Strategic Fit: Weak. Ability to Execute: Weak.

RECOMMENDATION
Consider alternative strategies or address significant gaps before proceeding.

LowHighStrategic FitHighLowAbility to Execute

Use when​

  • You have a clear and strong conviction about the future evolution of a market.
  • You have the resources to make a massive, long-term investment.
  • The future prize is large enough to justify the risk.
  • You have the capability to both innovate (build the Tower) and commoditize (build the Moat).

Avoid when​

  • You are uncertain about the future direction of the market.
  • You lack the financial resources or the long-term commitment to see the strategy through.
  • The market is evolving too quickly or unpredictably to make a long-term bet.
  • An aggressive, monopolistic strategy would attract unacceptable regulatory risk.

🎯 Leadership​

Core challenge​

The core leadership challenge is making a massive, long-term bet on a future that is inherently uncertain. This requires incredible foresight, conviction, and the ability to persuade the entire organization to invest in a vision that may not pay off for years. Leaders must also be willing to cannibalize their own potential future revenues by commoditizing emerging services to build the Moat, which can be a difficult decision.

Key leadership skills required​

  • Visionary Thinking: The ability to see the future landscape and identify the critical components to own.
  • Strategic Patience: The discipline to invest for the long term and not be swayed by short-term pressures.
  • Capital Allocation: The skill to make large, risky investments with a clear strategic rationale.
  • Ecosystem Governance: The ability to build and manage a large ecosystem of partners and developers.

Ethical considerations​

This strategy is explicitly aimed at creating a dominant, near-monopolistic position. This raises significant ethical questions about fair competition. Using a dominant position to stifle innovation by commoditizing any new idea that emerges can be seen as anti-competitive and harmful to the health of the overall market. Leaders must balance the pursuit of strategic advantage with their responsibility to maintain a fair and competitive environment.

📋 How to Execute​

  1. Identify the Future Tower: Use Wardley Mapping to anticipate the evolution of your market and identify a component that will become a critical utility.
  2. Invest and Build the Tower: Make a significant, long-term investment to build a best-in-class version of this future utility. Focus on scale, reliability, and cost-effectiveness.
  3. Foster an Ecosystem: Encourage others to build on top of your Tower. Create APIs, offer support, and build a community. This creates network effects and makes your Tower more valuable.
  4. Identify and Commoditize Complements: Monitor the ecosystem for emerging, higher-level services that are gaining traction. Proactively build your own versions of these services and offer them at a very low cost or for free. This is the core of building the Moat.
  5. Defend and Expand: Continuously invest in your Tower and expand your Moat by identifying and neutralizing new potential differentiators.

📈 Measuring Success​

  • Market Share of the Tower: Do you have a dominant share of the core utility market?
  • Ecosystem Size and Health: How many developers, partners, and customers are building on your platform?
  • Absence of Competitors: Have you successfully prevented any significant, differentiated competitors from emerging?
  • Profitability of the Tower: Is the core Tower generating significant and sustained profits?

⚠️ Common Pitfalls and Warning Signs​

Betting on the Wrong Future​

The biggest risk is that your prediction about the future is wrong, and you invest billions in building a Tower that nobody wants.

Failing to Build the Moat​

Building the Tower is not enough. If you fail to build a strong Moat, a competitor can build on top of your utility and capture all the value.

Being Too Slow​

If you are too slow to identify and commoditize emerging differentiators, a competitor can establish a foothold and build their own Tower.

Attracting Regulatory Intervention​

An overly successful Tower and Moat strategy can be perceived as a monopoly, leading to antitrust lawsuits and regulatory intervention.

🧠 Strategic Insights​

Innovate, Leverage, Commoditize (ILC)​

This strategy is a powerful application of the Innovate, Leverage, Commoditize (ILC) pattern. You innovate to build the Tower, leverage the ecosystem to see what's next, and then commoditize those emerging patterns to strengthen your Moat.

The Power of Position​

A Tower and Moat strategy is the ultimate positional play. It's not about having the best product at any given moment, but about owning the most valuable real estate on the future map.

❓ Key Questions to Ask​

  • The Future State: What do we believe this market will look like in 10 years, and what will be the most valuable component to own?
  • The Bet: Are we willing to make a massive, multi-year investment to win this future market?
  • The Moat: What is our concrete plan for commoditizing the layers above our Tower to prevent competition?
  • The Ecosystem: How will we incentivize others to build on our Tower and make it more valuable?
  • The Risk: What are the signals that would tell us our bet is wrong, and what is our plan if that happens?

🔀 Related Strategies​

  • Innovate-Leverage-Commoditize (ILC): This is the underlying engine that drives a Tower and Moat strategy.

  • Two-Sided Markets: A two-sided market can be a powerful way to build the network effects needed for a strong Moat.

  • Embrace and Extend: A related strategy, but typically focused on co-opting an existing standard rather than building a new Tower.

  • Raising Barriers to Entry: The Moat is a powerful set of barriers to entry.

  • Buyer-Supplier Power - leveraging influence over supply chains and customer relationships to deepen the moat and raise switching costs.

  • Platform Envelopment - Enveloping adjacent services or functionalities into the core platform is a key method for building the "Moat" around the "Tower," by commoditizing potential differentiators.

⛅ Relevant Climatic Patterns​

📚 Further Reading & References​

Author

Dave Hulbert
Dave Hulbert
Builder and maintainer of Wardley Leadership Strategies