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.

As AI commoditizes user interfaces, enduring value will reside in the backend systems that are the authoritative source of data (e.g., payroll, financial records). These 'systems of record' are sticky due to regulation, business process integration, and high switching costs.

For Constellation Software's customers, like court systems, switching software isn't just a complex IT project. It involves maintaining a legal chain of custody for records. The high risk of data alteration during migration makes switching practically impossible unless a new solution is 10x better.

Incumbents like SAP are hard to displace because their value lies in the deeply embedded, customized business logic that defines a company's operations. Simply offering a database and APIs is insufficient, as it misses this crucial layer of operational DNA which acts as a key differentiator for the customer.

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.

Local governments are slow to change, risk-averse, and not incentivized to upgrade technology. This institutional sluggishness, while inefficient, acts as a powerful competitive advantage for incumbent software providers like Daily Journal, as clients are highly resistant to switching systems.

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.

Alex Rubalcava argues that businesses won't replace software integral to their operations—systems of record or platforms touching money, regulation, or physical assets. The high cost and risk of failure create a strong moat against AI-driven replacements, protecting companies like Shopify and Viva.

Industrial tech tools build a deep moat through stickiness. Once integrated, they become the trusted system of record not just for the company, but for its partners and government customers. This ecosystem dependency, like Palantir's, makes them nearly impossible to replace, leading to near-zero churn.