Why we should separate the real platforms from the pretenders

Everybody wants to be a platform. Spotify, the hot digital music service, is the latest company to sketch out a platform strategy. But building a real platform takes more than throwing out a few APIs and saying, “have at it.” To achieve business objectives like revenue growth, customer acquisition and network effects, would-be platform suppliers have to deliver audience, distribution and revenue potential.

Tech market observers use the term “platform” in a variety of ways. What I’m talking about here is a technology platform with application programming interfaces (APIs) that developers and sites use to build or enhance their own applications and services. On the consumer web, even a company with an industry-leading audience is vulnerable to competitors that supply better platforms. Myspace’s failure and Yahoo’s malaise are attributable to Facebook’s and Google’s platform prowess. Though both companies have or had big audiences, neither built out APIs that would enable distribution, data access or unique technology integration.

A successful platform delivers the following business benefits to its supplier:

  • Low-cost features. Spotify will instantly add a handful of compelling music features (discovery, touring info, lyrics) with minimal development costs.
  • Customer acquisition and retention. Facebook’s games and news apps increase usage duration and frequency, and its syndicated Connect and Like services both attract new users and bring them back regularly to the site.
  • High-margin revenue. Developers like Zynga that use a platform to attain a large audience and big sales don’t complain too much when Facebook takes a 30 percent cut.
  • Network effects. All of the above, along with viral sharing features like Follows, Likes and updates, encourages continuous connections between users and developers. That reinforces the core business and can lead to lock-in and platform dependency for developers and users both. Facebook claims to have 9 million businesses using it for promotion.

To attract developers, a platform must deliver something they want. That can be access to a big or specialized audience, core technologies and services developers can’t build themselves, and/or data, as well as distribution and potential revenues. Here is how some of the platform players in consumer and social media stack up. (A similar analysis framework applies to mobile, e-commerce and enterprise platforms.)

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As illustrated, Spotify is delivering a medium-sized audience in a targetable music-fan context, and it has enabled app discovery and sharing. But it falls short on most measures.

Google’s major platform innovation was to deliver an easily accessible revenue stream to its search partners via revenue-sharing from its ad networks. Oddly, it hasn’t done this — yet — for Google+, as it wants to build audience first. Syndicated Google+ services promise indirect revenue benefits through search engine optimization. None of the players are particularly good at developer support, but Google has the strongest analytics tools offering.

Neither Twitter nor LinkedIn focus their platforms on getting apps for their site. Twitter’s platform is all about spreading its content and data to other sites, either through liberally open APIs (though the terms may shift) or licensing via Gnip and Datasift. It’s up to developers to make money. LinkedIn’s content and data syndication is aimed at increasing usage. Its pitch to sites would be stronger if it could build out a professional marketplace beyond hiring or if it exposed more customer information gleaned from its desirable professional audience.

Clearly, Facebook is the current master of the online consumer platform. Its balance of a semipermeable walled garden and widely distributed off-site technologies creates a potent potential for network effects. It doesn’t share ad revenues, but its Credits system enable cross-developer commerce. Companies building consumer platforms would be wise to emulate its tactics and offer competitive differentiation via support, revenue-sharing and specialized audiences.

Question of the week

Which companies are building killer platforms for other market segments?
Relevant Analyst
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David Card

VP Research Gigaom Research

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6 Comments Subscribers to comment

  1. Dacast possibly for monetizing Online Video-Internet TV content producers. CDNs like Kaltura are close followers.

  2. DaCast does bring along a potential revenue stream via deals with video ad networks. But I’m not seeing much of a network effect potential, or easy audience acquisition. Am I missing something?

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