There is no doubt that the wide moat stands as one of the most durable metaphors of investing. It's important to remember, however, that a moat will only repel a ground assault. The invention of aircraft pretty much made moats and trenches worthless in warfare.
Similarly, moats around businesses can give investors and management a false sense of security. Even after the enemy rappels down into the castle, its inhabitants are at a loss to explain what has occurred. This pretty much sums up the dynamic between Research In Motion (RIMM) and Apple (NASDAQ:AAPL). The biggest risk to a moat is not from incremental improvement, but from the creation of an entirely new product category which makes the moat and castle obsolete.
John Gruber has a wonderful post at Daring Fireball, explaining how Clayton Christensen, author of 'The Innovator's Dilemma', got the iPhone wrong. But while, Christensen later realized his mistake and explains it in a recent interview. Research In Motion still doesn't get it. The company continues to sell the product it knows how to make, rather then the one people now want. It continues to make phones with email, when people want small computers with phone apps. There should be no surprise as each quarter is progressively worse, and as the company repeatedly misses targets it had lowered just weeks before.
The company's trajectory is inexorably towards zero. The only wild card is whether someone jumps in to buy it for its intellectual property before it gets there. But, as Eastman Kodak owners and others have found out, sometimes, that doesn't happen. It is true that Research In Motion has a big cash pile and does not have the legacy pension obligations or debt that Kodak had, but in a downward spiral caused by disruptive technology, the business decline is generally steeper than the most pessimistic projections.
In our mind this is a huge value trap, and we find it difficult to see any bull case other than the hope of a white knight. We're sure, however, that some of our readers will disagree, and we look forward to hearing the bull case, and perhaps even being convinced.
Disclosure: The author holds no position in any stock mentioned