Building a company on top of an existing platform – yes, no, maybe?

There has been a lot of chatter about platforms as of late and their moves have mostly been to the detriment of platform developers (Facebook forcing Zynga to use their credit system; Twitter banning third-party apps from inserting in-stream ads or Apple changing their developer agreement to ban use of third-party analytics and services). As the life of a platform developer has become less interesting / profitable and more risky, should you still consider building a company / product on top of an existing platform?

First of all, every platform that is run by a for-profit company will ultimately try to maximize their economic rent and will leave just enough on the table for application developers to keep them motivated to continue to innovate on the platform. To assume that platforms would think differently about this is naive in my opinion (hence I am still surprised why people are still so upset about Twitter’s moves as of late). Given this assumption, there are only 2 strategies for app developers to mitigate risk and build businesses on top of other platforms:

  • Focus on applications that are (most likely) non-core to the platform in order to minimize the risk of being completely taken out by the platform (as happened to some Twitter iPhone apps when Twitter bought Tweetie)
  • Diversify as quickly as possible onto other platforms in order to limit your dependency (e.g. in hindsight Zynga should have probably focused earlier on the iPhone platform and building up their own web properties)

The risk of developing for a platform must be weighted against some of the amazing distribution (and monetization) opportunities that all of the large platforms offer so the decision will never be black or white. Personally, I would invest in a company that intends to build products on top of an existing platform like Facebook or Twitter as long as they have a clear strategy to mitigate risks as mentioned above.

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