You have an incredible idea. Not an idea, the idea. You understand the space, you’ve vetted the concept, you’re ready to build your product. Only one question left—where to build?
Let’s imagine it’s a social app, so you’re weighing the pros and cons of the big players. Twitter, Facebook, iPhone. You should just pick the best platform based on your needs and run with it, right?
Growing Envy with Green
Let’s consider a couple examples. Founded in 2007, Zynga grew up with Facebook. As Facebook rapidly expanded, Zynga did as well—providing Facebook users with those additively fun games we use to avoid doing work. By 2009, Facebook had 350M users, Zynga had 60M Facebook users, and everyone was satisfied.
Except everyone was not satisfied. Specifically, Facebook wasn’t pleased when it became increasingly clear how successful Zynga had become. In 2009, Facebook ended the year with a ~$700M revenue but still wasn’t profitable, while Zynga obtained ~$200M in revenue and actually achieved profitability—with only ~1/6 the user base.
Twitter’s meteoric growth similarly gave rise to countless developers. The platform’s rapid expansion came with few real changes to the platform’s functionality so developers raced in to support the social network with URL shortners, image hosting services, and mobile applications.
So what was Facebook going to make of the tremendous revenue that Zynga was pulling in? How did Twitter expect to make money? Those were questions for another day.
Then that day came.
The Claw Back
As far as Facebook was concerned, Zynga owed its success to the Facebook platform and so Facebook deserved a greater share of Zynga’s revenue. Facebook began by forcing Zynga to use Facebook Credit as its sole payment method for virtual goods, an immediate 30% haircut on Zynga’s revenues. More recently, it’s been pushing to rope Zynga into a long-term exclusivity contract.
Similarly, Twitter developers were thrown for a loop earlier this year when the platform moved into direct competition with its ecosystem. After indiscriminately wooing developers and offering implicit promises to allow a thousand flowers to bloom, Twitter launched its homegrown official Blackberry application and purchased Tweetie to rebrand it as the official iPhone application.
Predictable [sic] Platforms
But what if it’s a predictable platform?
Keep in mind that Facebook and Twitter were all considered predictable platforms at different points in time. Facebook has a history of throwing developers for a lurch by arbitrarily changing the policies and the platform. And just days before Twitter began announced their BlackBerry and iPhone applications, developers were arguing that “it would be a disaster for them to compete with their ecosystem, which drives 70% of their traffic” and that Twitter was “very respectful of third-party apps”.
Some have been pointing to the iPhone OS as an example of a mature platform—Apple takes a 30% revenue cut, nothing more, nothing less. We should all build applications for a “safe bet” like Apple.
Except for the fact that the iPhone OS is far from a safe bet. Making that claim ignores the murky approval process, the fact that Apple has haphazardly pulled down applications in the past (e.g., if they thought an application was too sleazy—unlike Playboy’s very classy app), and the arguably outrageous 30% margin Apple takes on all apps.
Are more mature platforms a better bet? Perhaps. Are they a safe bet? No.
Most of these companies have already decided that solely providing developers with a platform to build on isn’t their optimal business model. Get too successful (and too dependent), and you can be sure any of these “predictable platforms” will figure out a way to get their slice of your pie.
It’s not that entrepreneurs shouldn’t build applications for the iPhone, Twitter, or Facebook. Entrepreneurs should diversify across the platforms.
Zynga is scrambling to do exactly that now with the launch of Farmville.com and rumors of the impending launch of a “Zynga Live”. But as Zynga works to move its users from Facebook or Tagged or wherever else to its own sites, it is losing revenue, losing profitability, and losing users.
Twitter developers have also been trying to decide how to react. On the day before Chirp (the official Twitter developer conference), several developers met privately to discuss the situation and their options, including the outlandish scenario where the developer create a Twitter alternative.
The weaker the platforms, the stronger your business: treat these platforms like channels and win.