Barriers to Entry for Web Based Companies

I have been giving a lot of thought lately to what builds sustainable value in web based companies. Clearly you have to build a product which is very valuable to a large number of users and continuously innovate on it which is no easy task, but even if you've managed to do that and get adoption the game is far from over. Any firm can replicate what you have done and steal your user base.

Why might a user stay with you? Well, there are a few reasons:

1. You have a superior offering. This might be because:

A. You built a better mousetrap (Google Search, GMail, GMaps, iPod, iPhone, Macbook Air). There is still the risk that someone else will build a better one than you did which means you need to continuously innovate to beat them to it. This of course is very difficult.

B. Your service gets better with each additional user (eBay, Craigslist, StubHub, Facebook, MySpace, AIM, Skype). In B-school this is referred to as a "Network Effect" and works particularly well for marketplaces and communication products. IE in the classic case of eBay each additional listing attracts more buyers, which attracts more sellers, etc etc.

2. It's painful for a user to switch to another service (switching costs).

I think facebook is an example of a company with great switching costs. Think about it. How long would it take to re-add all of your friends, re-upload all of your pictures, re-do your wall posts, fill out another profile, etc etc to switch to some new social network? A long, long time... so you probably won't... especially if you've been on facebook for as long as the initial, core users have.

3. Here's one that I don't think many people focus on: your users trust you/love you more than your competition.

To me, this seems key for the web. Trust is everything. As long as your users are happy with your product and they trust you, why would they use some random new company's stuff? This is especially true in cases where there is some perceived risk on the part of the user when using the service you offer. For instance, people trust big brands like Amazon, Best Buy and Wal-Mart to provide quality service and safeguard their credit card information enough to be willing to pay an average premium of 15% over an unknown, low-priced merchant.

I am curious to hear any of your thoughts on the topic. It's very, very important stuff!