Andrew Chen Archives

Sometimes platforms can be dangerous to your health…

Recent platform news
I’ve been interested in the rush of recent news about the various challenges that app developers are facing relative to the platforms they’re building on, whether that’s Facebook or iPhone:

• Couldery Shouldery: the Lookery post-mortem
• CNet: Does iLike price show the cost of Facebook dependence?
• The Case Against Apple in Five Parts

Reading the excerpts
Each of these stories is slightly different, but worth repeating – here’s the relevant paragraph from Scott Rafer’s Lookery post:

So far so good on using an ephemeral opportunity to create a company, but this is where I place Coulda-Shoulda #1. We exposed ourselves to a huge single point of failure called Facebook. I’ve ranted for years about how bad an idea it is for startups to be mobile-carrier dependent. In retrospect, there is no difference between Verizon Wireless and Facebook in this context. To succeed in that kind of environment requires any number of resources. One of them is clearly significant outside financing, which we’d explicitly chosen to do without. We could have and should have used the proceeds of the convertible note to get out from under Facebook’s thumb rather to invest further in the Facebook Platform.

Similarly, here’s the excerpt from the recent article about iLike:

Some in Silicon Valley have speculated that MySpace isn’t willing to pay more for iLike because it fears Facebook will boot iLike once its main rival takes control of the service. But that doesn’t go far enough in describing the situation, said one of the sources. What has pushed iLike’s valuation down is a problem with control. The company’s managers have no way to prove to potential acquirers that their business model has a bright future because they can’t predict from one day to the next which direction Facebook’s Platform will go. The source said that leaders at iLike, or any other company on the platform, are not truly in control of their fate–Facebook’s Mark Zuckerberg is.

“The cash flow of any company doing business on Facebook’s API, or Facebook Connect, or Facebook platform is inherently at risk,” said the source. “The multiple that an investor can place on that cash flow is not that much greater than 1, because you never know at which point Facebook could change the terms of the relationship or change the technology and cut off that cash flow.”

And finally, the discussion on the iPhone platform, which Jason Calacanis makes in 5 parts with the last 3 points involving their App store platform:

1. Destroying MP3 player innovation through anti-competitive practices
2. Monopolistic practices in telecommunications
3. Draconian App Store policies that are, frankly, insulting
4. Being a horrible hypocrite by banning other browsers on the iPhone
5. Blocking the Google Voice Application on the iPhone

The mismatch of agendas
Ultimately, the vast majority of these disagreements between platforms and applications seem to be over the inherent mismatch of agendas between the two parties. Applications seek to maximize their distribution and gain customer share, while minimizing their dependence to the particular channel. For platforms, they seek to control the applications which depend on them, and prioritize the long-term success of the application ecosystem rather than any individual application’s. The ecosystem around a platform is complex because there’s a 2-sided market built in – the customers they serve, and the applications that want to use them. Prioritizing application developers above all else leads to sloppy, disjointed experiences – that’s one of the things you have to admire about Apple’s tight-fisted approach to App Store discovery, payments, etc. I haven’t had a bad experience yet, versus the constant complaint comments I get from disgruntled users whenever I wrote about Super Rewards or Offerpal.

As I wrote about in my previous blog post Benefit-Driven Metrics,  ultimately the platforms should try to help the the applications that build on them make as much sustainable revenue as possible. As long as there’s a long-term business there, more developers will continue to be attracted to building more functionality and richness. I believe that the Facebook economy has (surprisingly) shown itself to be capable to support several VC-backed companies making 10s of millions in revenue, whereas the same cannot be said for the iPhone platform yet. I’m sure someone in the mobile world will figure it out eventually, though.

For any application developer though, the core lesson is – don’t get too comfortable ;-)

Conclusion
How will these recent issues steer the platform agenda in the future? In particular, let’s look at iLike’s exit – what are the implications for other startups?

Will people conclude negatively about:

• music startups
• ad-based app companies
• startups that are building horizontal apps on Facebook/Twitter
• any startups building on one of these platforms

Perhaps it will be all 4, or perhaps just localized to a particular sector. Only time will tell.

Hope you enjoyed this article, and leave me any comments if you have extended thoughts!

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