Having a clear competitive advantage is essential to the success of any business.
eBay (Nasdaq: EBAY) is a classic example of a company enjoying an advantage that its competitors would dearly love to have. If you have an item to sell, you want the maximum number of potential buyers, which generally results in higher bids and, hopefully, a satisfactory sale price. This deters you from using a competitor's website that has fewer eyeballs. For eBay, the benefits are not only great pricing power, but also a dominant market share.
Two quality shares in the Australian market that posses a network moat are the REA Group Limited (ASX: REA) and Carsales.com Limited (ASX: CRZ).
REA Group's jewel in the crown is the real estate website realestate.com.au. The company is a real estate-focused digital advertising company, operating 13 websites in Australia, Europe and Hong Kong. It is 61% owned by News Corp (ASX: NWS). It has developed a strong brand courtesy of its first-mover advantage, and as a result, dominates its sector of the web.
Carsales has likewise managed to grab a dominant online market share. If you want to sell your car online, there are few alternatives. Competing with the elephant has been tried by the very well funded Carsguide, but it has made only a minor impression on Carsales' market share.
Foolish takeaway
In my opinion, the competitive advantage these companies enjoy should almost certainly result in solid and sustainable earnings growth for both REA Group and Carsales. However, history is full of seemingly impenetrable companies who yielded significant market share to upstart competitors. Remember how dominant Microsoft once was? So it pays for investors to monitor the competitive landscape for potential disruptors.
