Messiness can be a huge moat
If you are able to control and simplify it
Tackling a messy problem—one that is difficult, constantly evolving, and often requires extensive integration with other systems—can be an exceptional competitive advantage. This messiness may involve customized workflows, complex data requirements, or the need for continuous investment to stay aligned with changing regulations or user needs. When a company becomes deeply embedded within such an intricate ecosystem, replicating its position becomes increasingly difficult for competitors. In short, integrations and workflows create a messy but powerful moat.
This type of moat becomes especially valuable in industries where the problem is inherently challenging or where the solution involves extensive ongoing integration with external platforms. Each integration with a new partner adds another layer of complexity, requiring specialized knowledge of both the core system and the unique requirements of each connection. For competitors, this complexity isn’t simply a matter of building similar technology; they’d need to replicate the entire web of relationships, customized workflows, and data handling capabilities. In this way, a company that successfully manages such a complex network of integrations achieves a moat that is both unique and difficult to replicate.
Case Study: Epic Systems
Epic Systems is an ideal example of how a company can turn a complex, messy problem into a competitive moat. Founded in 1979, Epic is one of the largest electronic health record (EHR) software providers in the United States, serving hospitals, clinics, and specialty care providers of all sizes. Epic’s software supports numerous facets of healthcare delivery, including clinical workflows, scheduling, billing, and patient engagement.
One of Epic’s formidable advantages lies in the extensive network of integrations it has built over decades. Each integration with a healthcare provider is designed to accommodate unique workflows, regulatory requirements, and technological systems specific to that institution. This customization allows Epic’s system to function seamlessly within each hospital's operations, making it a natural choice for institutions seeking a robust and reliable EHR solution. For every new hospital it partners with, Epic has to create connectors and workflows that are often custom-tailored, which adds depth to its offerings and further reinforces its moat. This accumulation of expertise and technical complexity makes it nearly impossible for competitors to provide the same level of customization across a similarly wide range of providers.
Data compatibility is one of the biggest challenges Epic faces in its integrations. Healthcare providers often store data in disparate formats using legacy systems, making seamless integration particularly difficult. Epic has heavily invested in transforming this fragmented data into standardized formats that allow healthcare providers to access and share information across systems. To achieve this, Epic employs data translation tools and uses interoperability standards like HL7 and FHIR, which enable systems to interpret data consistently. These technical and financial investments ensure Epic’s EHR can handle the complexity of healthcare data, further embedding it as a core technology in healthcare IT and solidifying its position.
The problems Epic has solved aren’t necessarily hard on a technical level. Integrating two pieces of software, on its own, isn’t as complex as building something like a database engine or an autonomous car. While there is certainly a degree of difficulty—such as dealing with data cleansing, API compatibility, and extensive testing—the real challenge lies in the sheer scale and quantity of integrations that Epic supports.
The diagram below illustrates the concept of Epic's competitive moat as the "area under the curve." The x-axis represents different integration instances (like hospitals, clinics, and specialty systems), while the y-axis represents the depth and complexity of each integration. Epic’s “curve” covers a broad area, symbolizing the vast network of integrations it supports. This shaded area under the curve is the moat itself—showcasing the extensive and complex integrations that create a significant barrier for competitors.
For any challenger, replicating this area would be a formidable task, highlighting why Epic’s position in the market is so resilient.
Epic’s dominance in the U.S. EHR market is not only a testament to its well-established network of integrations but also evidence of how its approach to tackling a messy problem has fueled its growth. With 39% of acute care hospitals and over 52% of acute care beds in the U.S. relying on its EHR system, Epic’s market presence is substantial.
To put this in context, Epic covers ~45% of the US population’s EHRs! This stronghold on the market isn’t just a result of technical capability but a product of decades of meticulous integration, customization, and continuous investment, creating a significant barrier for potential competitors.
Epic's revenue growth further underscores the strength of this moat. The company, still privately held and led by founder Judith Faulkner, has seen consistent financial growth over recent years as shown in the chart below.
There are definitely more than one reason for Epic’s dominance, but I think its ability to cover such a wide array for integrations is one of them. Epic’s journey demonstrates that messy can indeed be a powerful moat. Its extensive and intricate web of integrations, paired with its dedication to overcoming data compatibility challenges, has resulted in a dominant position that is incredibly difficult to replicate.