Creating Value: Products Vs. Platforms

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.

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