Imagine yourself as a fourteenth century European knight: safely tucked up in our crenulated castle, defended by our deep filled moat, we're the confident lord and master of all we can see. Yet we're on the cusp of a technological revolution that will overturn our beliefs and destroy our way of life. Cannon are coming and our moats are about to become prisons, not protection. Technological advances beget market dislocations, as old business models are overturned and new ones tentatively created. English surnames tell of such changes – Wrights and Smiths now far outnumber wheelwrights and blacksmiths, vocations long in vogue and now irrelevant. Now a new generation of knights stand watching their battlements blown apart as newspaper barons and music moguls desperately try to shore up their crumbling estates. They're on a hiding to nothing, of course; the invisible hand is unbundling their once impregnable moats through the medium of the internet.

Moats in Decline

From the mid- fourteenth century onwards the Hundred Years War pitted various noble houses against each other for mastery of France. One of the predictable effects of this conflict was an arms race, ending in the last battle of the war, at Castillon, the first time a battle was decided not by force of arms but by artillery. The development of gunpowder and the creation of cannon changed the face of warfare forever.

Out of this foment arose the science of chemistry and the engineering processes of metallurgy; the re-imagining of gunpowder for weaponry and the development of cannon capable of withstanding the forces generated by exploding projectiles. Overnight the intrinsic value of large defensive castles surrounded by moats collapsed. Often along with the buildings themselves.

When a Moat becomes a Prison

This, of course, is the other side of the investor's dream business: a company with a natural moat that protects it from competition. Sometimes the moat becomes less a defence and more a prison. Technical innovation has destroyed countless businesses that once seemed impregnable and it's surprisingly hard for a corporation steeped in a particular way of doing business to modify its behaviour. Dismantling decades of corporate practice and starting afresh is all too often too difficult.

In living memory we've seen market leaders like Xerox and IBM usurped as they were undone by unpredicted changes, before re-inventing themselves. They didn't so much lose their…

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