When Warren Buffet is looking for the next big thing, he looks at the business’ “economic moat”,  which refers to a company’s competitive advantage over another company in the same industry.

According to R.J. Hottovy, Director of Consumer Equity Research, Morningstar, this is a good strategy when you look at investing in online retailers, as that moat is often seen to be widening in that industry.

He explains traditional retailers are struggling to generate any kind of profitability in today's age. But on the other hand, companies such as  Amazon and eBay are booming. 

As more users flock to these sites for low cost, wide selection, and expedited shipping, David says, it has attracted a wider audience of merchants and advertisers and increases the value of the entire network in the process. He adds Morningstar is also seeing a similar phenomenon in online travel, with companies such as Priceline and TripAdvisor.