The Power and Responsibility of Platforms

network-effect

One of the most powerful things you can do in the technology business is to build a platform. If your product becomes foundational to other products, an entire ecosystem can take root, and the “network effects” can drive incredible adoption and loyalty to your own product.

Let’s take a look at a few of the great platform builders in technology right now.

  • Microsoft is one of the greatest platform architects of all time – first turning a contract gig with IBM into building a platform of their own with MS-DOS, and then gradually replacing it with Windows, which today runs on 90% of PCs and generates about $18 billion a year in revenue.
  • Apple failed in their efforts to build a dominant platform on PCs – Mac OS X is beautiful but commands tiny market share. So in a brilliant competitive move, Apple started from scratch and built an entirely new platform for “post-PC devices” like iPhone and iPad. And as they start to merge technology from iOS into their Mac products, you can catch a glimpse of where they are headed.
  • Google has been building a “cloud” platform for some time – from their web-based Chrome OS (designed to compete with Windows) to Android OS for phones and tablets (designed to compete with iPhone) and AppEngine (designed as a new cloud-based platform for web apps).
  • Platforms aren’t just limited to operating systems, either. Facebook built a core service for social connections and photo sharing, and in the process, created a social apps platform that has already spawned a $7 billion dollar company (Zynga for social gaming).
  • Twitter built an information and communications network, and much of their progress has been enabled by an ecosystem of app developers coming up with ideas for features (the @ mention and the retweet), and building clients, analytics and social CRM tools.

In fact, platforms are so powerful, that I think you can argue that there really aren’t any important and immensely valuable technology companies that haven’t built one.

At my new startup Riskalyze, we’re hard at work on our building our product and platform. Whether the platform becomes a big part of our value to the world remains to be seen, but I have a feeling that it will. So I’ve been spending a lot of time thinking about the principles of building a great platform.

Here’s where I’m at right now in my thinking.

  • Great platforms tightly control and deliver an incredible initial user experience.
  • Great platforms respect user freedom by allowing the user to then customize that experience and run whatever they want on the platform.
  • Great platforms find a way to deliver security and quality without eliminating user freedom.
  • Great platforms are upfront and clear with the developer community about the difference between “features” and “apps”, which goes a long way to avoid unexpected competition with their ecosystem.

In other words, with this great power comes great responsibility. The interesting thing is that the technology companies I mentioned above have each dealt with that responsibility very differently.

  • Microsoft, maligned for much of the 1990s as an anti-competitive behemoth intent on smothering competitors, turns out to have run their platform pretty darned responsibly. They consistently controlled the initial user experience, provided complete user freedom to run whatever you wanted on their platform, and they seem to compete fairly when building apps for their own platform (i.e. they won with Microsoft Office, but lost to competitors like Adobe when it comes to Photoshop).
  • Apple is building the ultimate closed platform. They tightly control not just the initial user experience, but the entire user experience forever and ever (carriers can’t even get their logo on the phone, much less load “crapware” onto it). They have great security and quality in their app store, but there is zero user freedom to run what you want on the platform. They are using the “walled garden” to give their own apps (such as iBooks) features that competitors simply can’t profitably provide (a 30% platform tax wipes out the entire profit margin on e-books, for example).
  • Google has gone with the “excessively open” strategy with Android. They have a very fragmented initial user experience as a result – no two Android phones from different makers or carriers look the same when you boot them up – and I think that really hurts them. They also don’t provide any kind of security or quality filters in their app store, resulting in widespread problems like this one.

What’s interesting is that the “user freedom” principle shifts a bit with web platforms like Facebook or Twitter (although not completely). Restrictive rules for what can run on a web platform seem more acceptable than the same rules on an OS platform, and I think that’s for two reasons.

First, I don’t pay anything to use the typical web platform. (Conversely, if you buy an iPhone, you’ll pay $200 plus at least another $1,680 over two years. A total of $600 goes to Apple. Once I buy a computing device, it’s mine and the platform can’t tell me what I can and can’t do with it.)

Second, I haven’t wasted my money if I stop using a platform, and I can switch with the click of a mouse if a good competitor arises. Losing users – either to a competitor or to nothing – is a great balancing force that promotes good behavior by a web platform. (And conversely, it’s not like you can install a different OS on your iPhone…you don’t get a refund if an OS platform changes the rules.)

Facebook has done a pretty decent job of managing their platform. They provide real benefits to developers, and their rules are both simple and stable as of right now. They require the use of their payments system for social gaming apps, but given the incredible revenues they drive to that industry, that seems reasonable.

Twitter, on the other hand, has been incredibly unpredictable. Chris Dixon famously referred to them as “a drunk guy with an Uzi.” They did a poor job of communicating what they saw as a core feature vs. what they saw as an app. As a result, they’ve continually built or acquired what used to be apps and turned them into core features. And now they’re trying to put third party Twitter clients out of business. Not a smart move, in my opinion.

So as we start building our platform at Riskalyze, these are the pitfalls we’re trying to avoid and the principles we seek to embrace.

We want our developers to know on Day One what we see as core to our platform, and what we see as great apps for them to build. We will tightly control the initial user experience so that it’s great, but then we’ll give users the freedom to run whatever apps they want, and our developers will be free to create whatever experience they see fit. And we think we can allow that freedom while still delivering security and quality to our users.

It won’t be easy, but that’s the price you pay for having the power of a platform behind you.

If I’m missing something key to building a great platform, I hope you’ll help me shape my thinking in the comments. Thanks in advance.

Aaron Klein is the co-founder and CEO of Riskalyze, a Sacramento-area technology startup working to revolutionize how people make risk/reward decisions.

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