AI and the Collapse of Business Moats

From Scale to Individual Leverage

Example: A two-person startup can now produce marketing campaigns, financial models, and investor presentations that previously required dozens of staff. Indie game developers using AI for art and dialogue design can compete with mid-tier studios that once relied on large teams.

From Information Asymmetry to Commoditised Knowledge

Example: Legal AI tools such as Harvey or Casetext can draft briefs and conduct case law research at a fraction of the cost of junior associates, eroding law firms’ advantage in information-heavy tasks. Market research once requiring paid reports from Gartner or McKinsey can increasingly be replicated with AI-driven synthesis.

From Network Effects to Layer Inversion

Example: AI shopping copilots can simultaneously scan Amazon, Walmart, Shopify stores, and independent websites, providing the consumer with a single aggregated recommendation. Similarly, AI travel planners can bypass Airbnb or Booking.com’s curated results, pulling the best lodging options across platforms.

From Switching Costs to Frictionless Movement

Example: Cloud-based AI tools can now port customer data between CRMs like Salesforce, HubSpot, or Zoho with minimal friction. In fintech, account portability, as seen in the UK’s Open Banking framework, allows consumers to shift providers with a single API call.

Productivity, Democratisation, and Risk

Example: Freelance engineers using GitHub Copilot or Replit Ghostwriter can deliver projects that once required teams in large consultancies. Small e-commerce firms can deploy AI-driven customer service agents indistinguishable from those of multinational retailers.

Regulated balance sheets (in banking, insurance, etc.) still anchor consumer trust.
Credibility and reputation remain hard to automate.
Coordination costs can undermine looser networks of independents.
Incumbents will lobby to entrench regulatory or compliance barriers.

Policy Implications

Encouraging Portability

Mandating interoperability and easy switching between providers.
Enabling AI-driven consumer choice by ensuring fair access to data and APIs.

Supporting Independents and SMEs

Providing AI infrastructure credits or public datasets to level the playing field.
Reforming procurement to allow small players to compete with incumbents.

Rethinking Competition Policy

Moving beyond traditional antitrust focused on size, to consider AI-era bottlenecks (such as control over training data or exclusive AI-platform partnerships).

Redefining Safety Nets

If AI accelerates disintermediation, then traditional employment may fragment. Policy will need to adapt labor protections, benefits portability, and lifelong learning systems.

Investing in Trust Infrastructure

Governments can play a role in setting standards for authenticity, identity, and fraud prevention and so allowing smaller players to compete with consumer confidence.

The Broader Lesson

2025-08-25 | Strategy, Business Model Innovation | English |