A moat is a deep, broad ditch, either dry or filled with water, that is dug and surrounds a castle, fortification, building, or town, historically to provide it with a preliminary line of defense. In some places, moats evolved into more extensive water defenses, including natural or artificial lakes, dams, and sluices.
The idea of an economic moat was popularized by Warren Buffett. Answering an investor query in 1995, he said, “What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it, surround – protecting a terrific economic castle with an honest lord in charge of the castle.” He further added, “What we’re trying to find is a business that, for one reason or another – it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of technological advantage, or any kind of reason at all, that it has this moat around it.”
So a ‘moat’ means a channel of water that surrounded the medieval castles. It made it difficult for enemies to raid the castle. In the same way, an economic moat makes it difficult for a competitor to invade a company’s territory. In common parlance, a ‘moat’ equates to competitive advantage and barriers to entry.
