Competitive Moats - How do you know they are truly defensible?

Everyone loves to talk about competitive moats but how do you know if the moat is real? Take the example of Snapchat vs Instagram, their features were easily copied and then became an even bigger success story than the original product itself. 

I think a lot of tech companies seem to struggle with this problem of how defensible their moat is from 2 guys coding away in a garage. Yet, you look at tech multiples (especially SaaS) and they are at unbelievable valuations. Would appreciate some insight from experienced investors how they think about this?

 

I am not an experienced investor. Ultimately, no moat is sustainable forever, but network effect with customer captivity (switch cost) + relative scale advantage can be quite a moat. Barrier to entry is quite powerful too - think pseudo-legal monopolies, but that doesn't mean they have great economics (eg. Jones Act ship making, cable internet, utilities, etc.)

 

One way to know is if an entrant of significant size and scale has tried to compete and failed. A good example of this would be FB’s moat from network effects as Google+ entered the space with significant funding and a few years later shut down. I forget what this “theory” is exactly called but the guys at Polen Capital talk about this on the value investing with legends podcast

 
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