Software

Software covers application, infrastructure, data and design software sold by subscription or license. MoatScope covers 285 companies here, making it the largest technology industry in the universe. Sixteen have a wide moat, 81 a narrow moat and 188 none.

How the industry makes money

Software costs little to deliver once it is built, so successful products earn high margins on each additional customer. The expensive part is winning customers in the first place. Once a product runs a company's finances, sales, designs or infrastructure, revenue tends to recur for years, which is why the industry prizes subscriptions and customer retention.

Where the moats are

Switching costs dominate like nowhere else: 94 of the 97 moat-rated companies have them. Data, workflows, integrations and trained staff all make a system expensive to replace. Intangible assets appear in 38 and network effects in 29, usually where file formats, ecosystems or collaboration tie users together.

• Microsoft: cloud infrastructure, Office and Teams, and LinkedIn, reinforced by switching costs and network effects.
• Oracle and SAP: the databases and enterprise-resource-planning systems that large companies run their core operations on.
• Salesforce and ServiceNow: the systems of record for sales and customer service, and for IT workflows.
• Adobe, Autodesk and Figma: professional creative and design standards, where file formats and trained users lock in the tools.
• Cadence and Synopsys: a chip-design software duopoly; designing a modern chip is impossible without these tools.
• Intuit and Shopify: the financial and commerce operating systems of small businesses and merchants.
• Manhattan Associates, Verisign, Roper and Dolby: warehouse software, the .com and .net registries, software for niche industries, and licensed audio and imaging technology.

The narrow-moat group includes Palantir, Snowflake, Datadog, Workday, Atlassian, MongoDB, Twilio and Zoom. Most of the 188 companies without a moat are smaller vendors in crowded categories or early-stage technology bets, including several quantum-computing companies.

What wears moats down

Platform shifts reset the field, as the move to cloud computing did. Larger vendors can bundle features that used to be separate products, cheaper tools can win users from the bottom of a market, and new interfaces that automate routine work can reduce the number of seats customers need.

What the quality scores say

Wide-moat companies score between 52 and 86 on MoatScope's quality scale, led by Microsoft. The industry average is 34, reflecting the many companies that are still investing ahead of profits.

What to watch

• Customer retention and expansion within existing accounts.
• Changes to pricing models, from per-seat to usage-based pricing.
• Bundling and consolidation by the largest platforms.
• New interfaces that change how software work gets done.

Moat ratings and quality scores on this page update as companies report. Price versus fair value for every company in the industry is in the screener.