Platform distribution risks

When your product extends a platform’s functionality, one of the main risks you face is that the platform could embed your product’s key features within the platform – what is sometimes called subsumption risk. This happened to a lot of startups in the 90s that built products for the Windows platform.

When you depend on a platform for distribution (acquiring and retaining users), you take on different risks. Specifically:

1) Oversaturation. The risk that supply of products on the platform significantly outpaces demand. This seems to have happened recently to the iOS App Store: there are over 500,000 apps and counting, and popularity tends to be highly concentrated, making it very difficult for new apps to get noticed. Oversaturation also happened to Google (organic) results in most query categories in the last 2000′s.

2) Barriers to discovery. The risk that the discovery methods on the platform aren’t meritocratic. iOS apps depend upon appearing in iTunes’ Top 25 lists, leading to a “rich get richer” bias, along with aggressive attempts to game the system. Apple has other app discovery mechanisms like its Featured Apps and Genius features, but those seem to drive far fewer downloads than the top lists. Google search has increasingly been favoring Google’s own products and also seems to heavily favor older, well-entrenched websites, making it very hard for new sites to gain significant SEO traction. Currently, social networks like Twitter and Facebook seem to have the most meritocratic discovery mechanisms, which is one reason so many startups target them for distribution.

3) Throttling. The risk that the platform will throttle distribution or monetization (for apps that rely on paid advertising, throttled monetization also means throttled distribution). Facebook started out letting apps send unfiltered notifications to users’ timelines but then introduced algorithms that heavily filtered them (thereby entrenching the position of leading app makers like Zynga). Facebook also started out letting apps charge users directly, but later changed that policy and imposed a rev-share.

If you are launching a new website or app, you should have a distribution strategy beyond just “people will love it and tell their friends about it”. Your strategy should probably involve at least one major platform. And you should think through the distribution characteristics of the platform and decide if they are a good fit for your product and how best to mitigate the risks.

Finally, it is worth noting that some of the most successful startups grew by making bets on emerging platforms that were not yet saturated and where barriers to discovery were low. Today, the most interesting new platforms are probably Android tablets and emerging social networks like Foursquare and Tumblr. Betting on new platforms means you’ll likely fail if the platform fails, but also dramatically lowers the distribution risks described above.

The “thin edge of the wedge” strategy

Establishing relationships with new users is the hardest part of growing a startup.  For consumer products establishing relationships can mean many things: installs, registrations, purchases, or even just getting users to think of your website as a place to go for certain purposes.  For B2B products, establishing relationships means getting internal users or testers and eventually contracts and payments. For business development partners – for example API/widget partners – establishing relationships usually means getting functionality embedded in partners’ products (e.g. a widget on their website).

One common strategy for establishing this initial relationship is what is sometimes known as the “thin edge of the wedge” strategy (aka the “tip of the spear” strategy).  This strategy is analogous to the bowling pin strategy: both are about attacking a smaller problem first and then expanding out.  The difference is that the wedge strategy is about product tactics while the bowling pin strategy is about marketing tactics.

Sometimes the wedge can be a simple feature that existing companies overlooked or saw as inconsequential. The ability to share photos on social networks was (strangely) missing from the default iPhone camera app (and sharing was missing from many third-party camera apps like Hipstimatic that have popular features like lo-fi camera filters), so Instagram and Picplz filled the void. Presumably, these startups are going to try to use mobile photo sharing as the wedge into larger products (perhaps full-fledged social networks?).

Sometimes the wedge is a “single player mode” – a famous example is early adopters who used Delicious to store browser bookmarks in the cloud and then only later – once the user base hit critical mass – used its social bookmarking features. Other times the wedge lies on one side of a two-sided market, in which case the wedge strategy could be thought of as a variant of the “ladies night” strategy. I’m told that OpenTable initially used the wedge strategy by providing restaurants with terminals that acted like simple, single-player CRM systems. Once they acquired a critical mass of restaurants in key cities (judiciously chosen using the bowling pin strategy), opentable.com had sufficient inventory to become useful as a one-stop shop for consumers.

Critics sometimes confuse wedge features with final products. For example, some argue that mobile photo sharing is “just a feature,” or that game mechanics on geo apps like Foursquare are just faddish “toys.” Some go so far as to argue that the tech startup world as a whole is going through a phase of just building “dinky” features and companies. Perhaps some startups have no plan and really are just building features, likely with the hope of flipping themselves to larger companies. Good startups, however, think about the whole wedge from the start. They build an initial user base with simple features and then quickly iterate to create products that are enduringly useful, thereby creating companies that have stand-alone, defensible value.