Switching Costs

The price that would be received to sell an asset or cash generating unit in an orderly transaction between market participants (IFRS 13), less the costs of disposal. Under IAS 36, it is one of two measures used to determine the recoverable amount for impairment testing.

A pricing strategy in which a company sets its selling price by adding a fixed percentage to the cost of production or acquisition. The ability to sustain a high mark-up is often a direct reflection of intangible asset strength — particularly brand equity, product differentiation, and switching costs — and is a key indicator of competitive moat.

The ability of different information technology systems, software applications, and data formats to communicate, exchange data, and use the information that has been exchanged effectively. Interoperability is a critical design requirement in open banking, healthcare IT, and enterprise software, and is increasingly mandated by regulation.

The economic phenomenon whereby customers face significant costs, inconvenience, or barriers when attempting to switch from one product, service, or platform to a competitor, effectively binding them to their current provider. Lock-in can arise from contractual obligations, proprietary data formats, integration dependencies, learning curves, or network effects.

An autonomous software system that uses artificial intelligence to perceive its environment, make decisions, and take actions to achieve specified goals with minimal human intervention. AI agents are increasingly deployed in customer service, workflow automation, and decision support, and represent a growing category of operational intangible asset.

The framework through which an organisation creates, delivers, and captures value. A business model defines the logic of how a company generates revenue, serves customers, and sustains competitive advantage.

The process by which a smaller company with fewer resources successfully challenges established incumbent businesses, typically by addressing overlooked market segments or introducing fundamentally new value propositions enabled by technological or business model innovation. Disruption, as theorised by Clayton Christensen, occurs when incumbents focus on improving products for their most profitable customers while disruptors target neglected segments with simpler, more affordable, or more accessible offerings.

The practice of contracting a business function, process, or service to an external provider rather than performing it internally. Outsourcing can involve domestic or offshore providers and may cover functions ranging from IT support and customer service to manufacturing and professional services.

AI and Competitive Moats: Valuing Proprietary AI Systems

Not all AI creates competitive advantage. This article examines the four types of AI moats — data, model, integration, and network — and provides a valuation framework for assessing the defensibility and durability of proprietary AI systems.

How do intangible assets create competitive moats?

Intangible assets create moats through brand loyalty, proprietary technology, data advantages, network effects, switching costs, and regulatory barriers that competitors cannot easily replicate.

How do you value proprietary technology and algorithms as intangible assets?

Technology value is assessed via patent strength, market adoption, competitive differentiation, and the cost to replicate. Strong tech moats justify premium valuations.

What is a moat and why do investors care?

A moat is a sustainable competitive advantage — brand strength, network effects, switching costs, proprietary technology, or scale — that protects against competition and justifies premium valuation.