What if the companies you trust most – tech giants, financial titans, iconic brands – aren’t as safe as they seem? In an AI-driven world of accelerating disruption, only one thing matters: how deep is your moat?
«The Only Constant in Life Is Change.»
Heraclitus, Greek philosopher (ca. 500 BC)
Original article here: NZZ The Market
The Kodak Moment.
A phrase once synonymous with cherished memories now serves as a stark warning: adapt swiftly – or risk being swept away by innovation.
Today, as the term AI floods headlines and boardrooms alike, another critical theme emerges with equal urgency – disruption. It is central, constant, and compounding. And in this new landscape, we need to change the lens through which we evaluate businesses. The focus must shift – from chasing growth to assessing durability.
The key question is no longer how fast can this company grow? But how well can it defend itself? A true moat isn’t a metaphor. Picture a fortress surrounded by a deep and wide trench filled with crocodiles and sharks: This is what it takes to protect a business’s core advantage today. The real edge lies in how resilient the business model – and its leadership – are when faced with relentless competition.
Investors are beginning to pivot. The obsession with future growth is giving way to a deeper appreciation for strategic defensibility – the kind that can endure shocks, shifts, and paradigm changes. Because even the most promising growth story can unravel in an instant when AI accelerates the forces of disruption.
We’ve already seen what this looks like. Chegg, once a $13 billion education tech darling, seemed unstoppable. But within months of ChatGPT’s debut, its business model collapsed (Chart 1).
Chart 1: Chegg’s collapse after the launch of ChatGPT
History offers a chilling parallel. Kodak, once a titan of photography, failed to capitalize on the digital wave it helped pioneer. The result? A dramatic and irreversible decline.
These are not isolated incidents. They’re signals. Clear, flashing red lights for anyone not stress-testing their portfolios for disruption risk.
Because the next Kodak moment could be happening right now.
And it’s coming for us all.
Why Disruption Risk Matters
Most investors fixate on growth, but growth alone isn’t the answer.
What truly counts is whether a business has a sustainable competitive moat – the fortress Warren Buffett champions – because competition erodes profits, and substitution can obliterate entire industries.
Let me repeat this, because it cannot be overstated: Competition kills profits. Substitution eliminates your business.
Which leads to the inevitable question: How do you defend your portfolio against it?
It all comes down to the strength of the economic moat: the company’s ability to fend off rivals, resist change, and safeguard its cash flows in an evolving world.
The strongest moats come with multiple layers of defense. These might be irreplaceable physical assets – take the waste management and recycling facilities from Waste Management, Waste Connections and Republic Services. Planning constraints, environmental regulation, capital intensity – these factors create a fortress. You don’t just build a new recycling plant on a whim.
Other moats include complex intellectual property – aircraft engines from Safran and GE Aerospace, for example – in industries where only a few players can even survive due to sheer technical difficulty.
Add to that massive installed bases, powerful network effects, brand equity, and high customer switching costs. The more layers, the better. Recurring revenue streams are helpful, but what really matters is whether a business provides an essential product or service. Predictability matters. Indispensability wins.
Most of these companies occupy monopolies, duopolies, or oligopolies. Or they dominate fragmented markets as clear and unchallenged leaders.
But here’s the trap: disruption strikes the moment these moats weaken– or worse, when they’re bypassed altogether.
Just look again at Kodak. Or Nokia. Or Blockbuster. These were once giants: global brands, household names, market leaders. Each with a seemingly unassailable position.
Chart 2: The Fall of Kodak, Nokia, and Blockbuster – Peak Market Cap and Employee Count
So, what happened?
They confused strength with invincibility. They mistook brand equity and historical dominance for defensibility. Kodak failed to act on digital photography in time. Nokia underestimated the iPhone. Blockbuster ignored the rise of streaming. Each believed their moat was invincible –until it wasn’t.
Growth without a barrier to entry isn’t strategy. It’s speculation.
The edge lies not in picking the fastest horse, but in choosing the companies with the deepest moat, the highest walls, and the best defense.
But that brings us to the next question.
How do we measure disruption risk?
And who’s at risk?
The Only Constant in Life Is Change
Disruption isn’t a matter of if. It’s a matter of when.
Look at the chart below. The titans of each era rise – and fall. In the 1970s, oil giants ruled. In the late 1980s, Japan Inc. dominated global indices. Then, in the 1990s, came the dot-com boom, followed by China’s industrial surge, and the tech giants of today. And every cycle had its «can’t lose» narrative. Until it did.
In January 1990, Japanese companies made up over 40% of the MSCI World Index. Today? Just 6%.
Chart 3: Market Leadership Is Fleeting: The Rise and Fall of Global Equity Titans (Top market cap at the beginning of each decade)
Entire nations’ equity stories collapsed – not from lack of effort, but from failing to see or act on structural change.
So, who is vulnerable today?
Any company – or job – that assumes yesterday’s advantage still holds tomorrow. As Heraclitus used to say 2,500 years ago: «The only constant in life is change.»
Taxi drivers once felt secure – until Tesla’s Full Self-Driving and Alphabet’s Waymo began removing the driver entirely. Visa and Mastercard dominate payments, but the silent rise of stablecoins and tokenized assets threatens to disintermediate them, one blockchain at a time.
Even Google, the ultimate internet gatekeeper, is now watching its core business model of search queries erode under the rise of Large Language Models.
And then there’s consulting – once considered AI-proof.
Firms like Accenture and McKinsey built global brands on expertise, strategy, and scale. But what happens when an LLM can synthesize research, craft presentations, run simulations, generate code, and develop entire go-to-market plans in minutes? When CEOs can query a digital strategist that never sleeps, doesn’t bill by the hour, and learns at exponential speed? The very foundation of these firms – human capital leverage – is now under siege.
Even Adobe, long a creative software powerhouse with near-monopoly status in design, faces existential threats. Generative AI tools and open-source alternatives can now produce high-quality visuals, illustrations, videos, and layouts without human intervention – or Adobe licenses. When professional-grade creativity becomes democratized and nearly free, Adobe’s moat – its pricing power, creative suite dominance, and lock-in – starts to erode.
And it’s not just corporate empires on the line.
It’s people.
Any job that can be codified, replicated, or performed by a humanoid robot is at risk. Lawyers, analysts, paralegals, translators, radiologists, customer support reps, truck drivers, even software engineers – all stand in AI’s shadow.
Disruption is no longer industry-specific.
It’s systemic.
The question is no longer: Is this a great business? It’s: Can this business defend itself in a world where nothing stays still? That answer will determine whether it thrives or vanishes. Because in the age of AI, the moat isn’t just a strategy. It’s survival.
We’ve seen how fast it can happen – Kodak is the textbook case. But one of the most striking examples comes from over a century ago: the horse.
In just 15 years, between 1907 and 1922, horses went from powering 95% of all private transportation in the US to under 20%. In cities like New York, the shift was rapid and undeniable. By 1916, St. Louis had more registered cars than horse-drawn wagons. And because cars traveled farther, faster, and cheaper, the horse’s fate was sealed the moment mass production began.
One car on Fifth Avenue in New York in 1900, one horse in 1913
Technological shifts don’t politely disrupt. They obliterate.
Even the most admired companies, or the «way it’s always been done,» can go from dominant to obsolete in a flash.
Every business today, no matter how revered, is just one Kodak moment away.
The Next Kodak Moment Won’t Announce Itself
Disruption rarely comes with a warning label. It doesn’t wait for quarterly updates or investor sentiment. It arrives fast, rewrites the rules, and renders once-great businesses obsolete – sometimes in months. As AI accelerates the cycle of change, every investor must ask: Is my portfolio built on enduring moats – or outdated assumptions?
Now is the time to audit your holdings. Examine not just growth potential, but strategic resilience. Scrutinize business models. Challenge management narratives. Look for signs of vulnerability – technological, structural, or behavioral. Because in this new era, the greatest risk isn’t missing the next big thing. It’s failing to see what’s quietly eroding what you already own.
The moat is no longer a nice-to-have. It’s the margin between relevance and ruin.
Check your portfolio – before the next Kodak Moment checks you.
The next Kodak Moment is coming.
One of the best posts I’ve read on Substack or anywhere actually for a long time. Thanks for taking the time to write it.
I worked with Nokia’s global marketing team when the iPhone was launched. Someone there actually called Apple “the little company in California.”
I write about defensible strategy the competition can’t copy. Strategy is a quest made possible by investing in a unique set of activities. At least, that’s my definition of it.
The problem comes when the set of core activities becomes generic and no-one notices.
Great post. Subscribed.
Chegg's business model had already topped in 2019 and was only artificially inflated due to the lockdowns. ChatGPT did hasten the decline but it was already falling.
Also AI isn't the same as a car compared to a horse. A car was a technological improvement. AI is an averaging system that feeds on itself producing more and more homogenised slop.
Where AI is good is for mundane tasks but they still require human input. It adds about 10% extra productivity once you factor in quality checks. Because all it is doing is shifting focus. Now you have to check the AI isn't lying.
Self driving cars will not work on mass until you put in a support system of signs and controls. There are just too many variables and humans don't work on the most probable or the most efficient. If you look at cars that have advisories built in (like lane warnings) very often they hinder the driver.
In science and engineering the balance is always between control and degrees of freedom. The more you control often leads to bad outcomes. And mass compute itself over the last 20 years has not produced better inventions. In fact in the space industry the best progress has come from ignoring the heavy data driven processes and using lean development, taking larger risks.
There will be some use of AI no doubt but right now what we are seeing now looks so much like a bubble.