The biblical parable tells the story of two builders. One of whom built a house on sand, and the other who built on rock. The outcome was predictable. Less predictable, but certainly possible, is the collapse of a company built on a platform it does not own. In this, and the series of articles to follow, we will focus on the inherent dangers entrepreneurs and investors of all stripes must acknowledge when growing a company or investing in a company dependent on a third party platform. Here are some examples:
Apple is a stellar example of a company that is completely independent and guards its platform with an unequaled zeal.
Apple avoids displacement by platforms that sit on top. It was for this reason that Steve Jobs would never consider Adobe Flash. Enabling Flash on the iPhone would make downloading applications written possible for use on the iPhone. Apple also bans Java on the iPhone for similar reasons.
Facebook is a polar opposite, welcoming developers with open arms. Some 70% of Facebook users interact with third-party applications every day.
This quote from Patrick Stafford’s article How a Facebook Tweak Killed a Billion Dollar Market, speaks volumes:
A large company like Facebook is always making little tweaks here and there – that’s how tech companies work. But, one of its most recent changes had a huge effect, even though in the scheme of things, it was a small tweak most people would not have noticed. For instance, the introduction of the Timeline format for Facebook Pages: This eliminated the use of “tabs” as landing pages, with various brands used for showing off a particular sale or picture. Businesses could decide what went on those pages, and how to draw customers in. But now, businesses can’t set a default page, and tabs have been minimized. And according to a new article on Fortune, use engagement with tabs is down 53% since Timeline launched. So what, right? Well, imagine you’re a company that actually depends on these tabs. That’s exactly what companies like Vitrue and Context Optional do. They customize these tabs for corporate clients, and together with another firm, Buddy Media, they’re valued at a whopping $US1 billion.
Twitter also has a history of being extremely open to developers but some recent API policy lockdowns and restrictions have made many developers uneasy.
This quote from JD Rucker’s article, Twitter: Another Example of Why You Never Build a Service Around Someone Else’s Service, echoes the Facebook sentiments addressed earlier:
Phrases such as “choke access“, “pushed developers aside“, and “talk to the hand” have been used to describe this behavior, currently being bashed by bloggers and Twitter users alike. It should act as a stark warning: don’t build anything for profit on someone else’s platform. It’s okay to utilize their services as components, but the companies who are relying on Twitter API calls to operate are going to be devastated by the changes.
Fred Wilson, co-founder of Union Square Ventures and leading spokesperson for the venture capital financial community, is quoted in an interview with TechCrunch’s Eric Schonfeld, “Don’t be a Google Bitch, don’t be a Facebook Bitch, and Don’t be a Twitter Bitch. Be your own Bitch.” It is an insightful interview, I recommend you follow the link above.
Fred Wilson leaves little room for doubt regarding his stance on abject dependency on other platforms. Ben Popper’s piece on Fred Wilson in BetaBeat: “Fred Wilson: Don’t Store Your Personality on a Company’s Platform, Use the Open Web” yields another pearl of wisdom. Fred Wilson, speaking at Smash Summit made the following point:
“Don’t ever abdicate your personal presence on the web to some fucking company, put it on the open web,”
Wilson expands on this point, warning of the dangers inherent in trusting your online identity to the Googles, Facebooks and Twitters of the world. His cogent argument is one that every startup, and by proxy, every angel investor and venture capitalist, should consider. Google, Facebook, Twitter and other companies like them, have a focus on their own best interests and trusting them to consider your best interests is naïve at best and just plain stupid at worst. The Facebook and Twitter example highlighted earlier, demonstrates the wisdom of the inimitable Fred Wilson’s words.
A recent example of this violation of trust recently surfaced in the competitive world of smartphones. Nokia, once the world leader in cellular phone sales, fell on hard times due to the rising popularity of smartphones, particularly those offered by Samsung using the Android platform from Google and obviously the Apple iPhone using iOS. Caught with its trousers around its ankles, Nokia turned to Microsoft. Nokia collaborated with Microsoft to be the first to launch a smartphone utilizing Windows 8 in its Lumia line of smartphones. Nokia bet the farm on this platform to reclaim its once vaunted status as the leading purveyor of smartphones in the global market. In a stunning act of betrayal, Nokia learned that Microsoft was working quietly behind the scenes to produce its own line of smartphones using the Windows 8 platform.
There is a “cold war” in the technology sector, waged between the goliaths in the industry and those seeking to ride their coat tails. This “cold war” has far-reaching implications for everyone.
In this series, we will expand this topic to include, not only the impact on developers, but developer backlash, potential repercussions for Facebook, Twitter and other platforms, symbiotic relationships that become parasitic and threaten the life of the “host” and trends in the tech ecosystem. We will also discuss how these events are affecting not only entrepreneurs, but also angel investors and venture capitalists. Potential litigation will be another topic, which will focus on the potential for judicial, regulatory or other possible forms of government intervention.
Part 2 of this series: Developers Beating a Retreat from Twitter’s Platform