There’s a great blog post by Chris Dixon that got my head spinning in this direction. Chris’ post is not directly about design; it’s more about the TV industry and Apple but he brought up a good point that I think bears repeating. When Apple was launching the iPhone, a lot of smart people thought that the company wouldn’t survive in the mobile industry because there was a widespread belief that mobile phones weren’t “broken”, in the sense that people had Crackberries and really great feature phones and, unlike the MP3 player business, there wasn’t an opportunity to beat the competition with a vastly superior product. That worked out differently than a lot of people thought it would, primarily because Apple designed a product that was far better than anything else on the market and people wanted to have one.
Chris’ post got me thinking about an earlier exchange of blog posts about the YC startup, Airbnb. If you missed this back-and-forth, check out Fred Wilson, Paul Graham and Andrew Parker’s posts on when and how USV missed the investment (it’s really insightful). When you think about it, this wasn’t a new idea. There were existing players already established in the space, and other substitutes that work just fine, namely VRBO, Homeaway and even Craigslist addressed some of this market. I would argue that AirBnb is winning simply by executing a better design than all of these competitor sites. They’re not a new concept, they just did it better and they understood what people want when they’re looking for a place to sleep. The site is designed incredibly well, and the feature set does exactly what you need it to; nothing more and nothing less.
I’ve taken to this today as a great example of a startup that didn’t wedge themselves into a new space in the market, they just found a space that had gotten a little sleepy and ate everyone else’s lunch.
Om Malik wrote a good piece on this merger; it’s fairly old news at this point. I’m pretty sure I dislike this deal and I think it’s going to inhibit American entrepreneurs from accelerating innovation in mobile.
Strategically, the proposed $39 Billion cash and stock deal that’s been put up by AT&T to acquire T-mobile is risky for the company. AT&T is justifying the price of the acquisition by claiming synergies, the NPV of which excede the total purchase price of T-Mobile (yes, you read that correctly, but they said the same thing last time). AT&T also has a $3 Bn. breakup fee, so if the FCC and DOJ decide that they don’t like the deal for anticompetitive reasons, it’s going to be expensive for them to fix.
Right now, AT&T has about 95.5 million subscribers and T-Mobile is hanging out with 34 million. Verizon has about 100 million users, so while this won’t create a monopoly, it will definitely create a duopoly when it comes to national coverage. Proponents of this merger point out that with the high CAPEX required to invest in cellular networks, this merger will allow for AT&T to invest in improving its network. While this sounds great, I have trouble seeing how a company that locks in over half of the market, subjects its customers to two-year contracts and has a competitor that uses incompatible technology (CDMA vs. GPRS) will be particularly interested in high CAPEX projects. It’s too difficult to switch, so why bother?
Right now applications are driving innovation while wireless carriers are falling behind. I may be cynical, but I have a lot of trouble seeing how this deal works out well for anyone other than AT&T and T-Mobile shareholders.
There’s been a lot of conversation about platforms recently, especially with the recent changes to the Twitter TOS. Chris Dixon wrote some great thoughts about the rules of platform ownership and makes a great case for maintaining transparency and clear expectations with developers. I’ve been thinking more about the value chain, and what the best decision is for creating value at a start up.
Everyone wants to build a platform because it creates a network of developers who become dependent on the ecosystem in some way. It’s like backwards integrating in other types of business; you move one step backward from the end users and start spending time and energy treating consumer-facing application developers as your customers. If you can build a successful platform, it usually scales better than a product or suite of products. You can make the case that this is a safer position because you have value-producing partners “in front of you”, all fighting for users and building features from your toolset. This creates a dependency that is difficult to break.
I think this holds true, but only for companies who first make extremely successful products. Twitter, Facebook and even Apple are examples of companies that made extremely successful products before rolling out a platform. I think start up companies need to spend their scarce resources focused on the product side before thinking about a platform. Entrepreneurs who try to make the jump to a platform before locking down a successful product never quite understand the high intensity needs of the end-user, and will be unlikely to create a platform that developers can build successful products on.