Platforms: Trick or Treat?

Platforms: Trick or Treat?

It’s that time of year when you spot the devil, Jesus, and a turkey next to one another… that is on different aisles in the drugstore. Despite Halloween, Thanksgiving, and even Christmas/Chanukah/Kwanzaa being about a month apart, industry still likes to maximize its opportunity to capitalize on these holidays.

Holidays always amuse me because while, yes, they are to honor some occasion or pay tribute, all of us consumers (me included) get roped into spending countless dollars on things like a giant blow up dreidel, a witch door stopper, many a fat Santas, and lets not forget a turkey/pumpkin decoration (a newly discovered gem), which dominates the hand stencil turkey cut outs….

So while these industrialists are capitalizing on our love for festivities and tacky trinkets, playing into our consumerist Achilles heel, software companies have taken a trick (and sometimes a treat) from their candy bag… Apple (no, not the caramel kind), Microsoft, Adobe, Facebook, and even Twitter have created ecosystems around their platforms. Holidays similarly are the main attraction but allow and give others the tools and creativity to build off of these foundations to fill in the gaps and give consumers what they want (and in many cases what they didn’t even know they wanted). This ultimately adds to the value of the platform and perpetuates our interest in the product or service.

It’s tough to build an ecosystem around your solution and while many attempt, very few are successful. There is a competitive advantage over competitors once a company has built an ecosystem around itself successfully and ultimately becomes a natural monopoly for that product. Others, of course, will continue to try and break into the market, but again, few succeed. iPhone and its many challengers are an obvious case but great example among others like Twitter, Facebook, eBay etc….

Any type of web service that requires multiple participants to extract value like in social communication, marketplaces, collaboration (and by the way if you need a great collaboration tool I could put a shameless plug in right here) creates this natural barrier through the value of the network. If you are the only one with candy on the street, most likely you won’t be getting trick or treaters. Sean Parker touched on Metcalfe’s Law, or the concept of network value, last week at the Web 2.0 Summit. Once many join, contribute, and stay, it makes the competitive positioning that much more difficult for a competitor to provide the same network value and lure you away. If you do it right, there is a huge market treat.

However, the main trick of this model is the level of risk associated with it. Many of these platforms did take on large sums of venture capital funding to be the first movers (but not necessarily) or to be the ones that ultimately build the network the fastest by being free and most popular requiring oodles of expansion capital they inject into their business. Even being the first might not be the right time; so, if you try handing out turkey drumsticks on October 31^st, it just might not go over so well. Even though these elite companies that ultimately will provide a decent return to many of their venture capital investors, there are very many companies with similar aspirations that have melted away into the witches’ cauldron.

So while the glory and success of these models are large, ghosts of the many ‘me too’ start-ups, turkey distributors, or other failures should haunt you as you start to contemplate a model like this. That said, with the right potion, on the right day, and in the right neighborhood, you might be the favorite on the block handing out those caramel Apples… Enopf said on this for today…