Marketo's sales team used high product usage to justify a price increase, assuming the customer was locked in. In reality, the high usage magnified the product's friction in the agentic era, making the customer feel like a "prisoner" and providing a strong incentive to migrate.

Even if AI makes it easier to build competing software, incumbent SaaS giants retain customers due to immense switching costs. The operational disruption, retraining, and integration challenges of migrating a large organization create a powerful moat against new entrants.

While creating a strong moat, high switching costs make it difficult to acquire new customers from competitors who enjoy the same advantage. This industry-wide customer inertia can severely limit a company's growth potential.

The convoluted nature of the health insurance system is not an accident; it is a strategic asset for incumbents. The resulting confusion causes exasperation among employers and consumers, preventing them from effectively questioning costs or believing they can enact change, thereby protecting the industry's profitable, high-cost model.

Switching AI vendors is difficult not because of data lock-in, but because of user expertise. The cost for a power user to learn a new tool is too high unless a competitor is at least twice as good, creating an "inertia grab" moat.

Incumbent software like Workday creates immense stickiness, not through love, but through deep integration and high switching costs. This creates a 'Hotel California' effect where customers 'can check out any time they like, but they can never leave,' a moat that only a 10x better alternative can breach.

Software's main competitive advantage isn't code, but its deep integration into customer data and workflows, creating high switching costs. AI threatens this moat by automating those integrated tasks, reducing customer stickiness and pricing power.

True defensibility comes from creating high switching costs. When a product becomes a system of record or is deeply integrated into workflows, customers are effectively locked in. This makes the business resilient to competitors with marginally better features, as switching is too painful.

The most defensible businesses, especially in enterprise software, create such high switching costs that customers are essentially locked in. This "hostage" dynamic, where leaving is prohibitively difficult, is a stronger moat than simply having satisfied customers who could still churn. It's the foundation of an enduring software business.