Startup Innovation Strategies - Platforms

This is part two, in a four part series.

Whenever new market spaces are created with the introduction of a new platform product, or when a product undergoes a major transition to become a platform, there’s rapid activity to occupy that new market space created. For example, with the introduction of Internet and as ISPs (like AOL) began providing consumers with access to the internet, a new form of business was created that was commonly called e-commerce about 18 years ago. This market space was quickly dominated by Amazon, Ebay and similar companies. Another more recent example would be the introduction of GPS into mobile phones, that created a new market space for location based services like foursquare.

Although the first form, introduction of a new platform product, is easily recognized, the second form, a product change because of a confluence other environmental factors, is hard to identify. Here, innovation activity is slower, and realization that the product has changed into a platform often goes unnoticed, even by product designers themselves. A good example would be twitter circa 2007 and twitter circa 2012. Twitter circa 2007 was a group messaging application. Twitter circa 2012 is a content aggregator as well as a messaging platform. Certainly, there is more going on with Twitter circa 2012 even though it had almost the same functionality, but what I want to illustrate here is that these are two different products with the same name. Two very different dynamics are present in the market space (at different times, of course), simply because there are more people on it. But essentially, the innovation pattern remains the same, even though the realization of transition comes slower.

I want to show that the introduction of a platform and the transition of a product from product to platform, comes with an innovation pattern surrounding that platform, that is similar and give examples of real world cases. Even though the products I will discuss are very different, there will be great similarities in product strategy. In the process, I wish to find out how we can recognize when a product undergoes transition to become a platform identify what factors contribute towards a product becoming a platform. I also want to find out what environmental factors contribute toward the dominance of certain products in a such a market space.

Foursquare (iPhone + GPS)

Foursquare was one of the leading companies that capitalized on the GPS-in-phone trend and make it big, by out competing others like Gowalla. Here, in my opinion, the strengths that lead to foursquare’s dominance is the competitive strategy of the company, rather than the feature set of the product. To out-compete others, they were able to raise huge funds early (presenting a convincing case for investors) and acquiring a winning team with star performers. This the type of service that can only be built in a startup ecosystem like Silicon Valley, where there exists technology friendly investors with the vision to back enterprising young developers. Also, I believe that, companies developing platform products that arrive early on the scene does better than companies that arrive late in the game. The key winning strategy seems to be to be able to scale as much as possible, early on. This lets network effects to kick in, preventing others from competing against you.

HootSuite (Twitter going mainstream)

This is a very different product from foursquare, and is built on top of twitter. Even though it is built on top of twitter, unlike foursquare, it does not advertise itself on twitter (like foursquare does with check-in messages), and has very little or no network effects going for it. Also, unlike foursquare which arrived almost immediately following the introduction of GPS, HootSuite was only possible with the “maturation” of twitter. This is a typical product of the case “when a product transitions to a platform”. But it does have competitive strategies that are similar to foursquare, in that it is early on the scene, and is driven to scale (by advertising - which is helped by the fact it sells subscriptions). Having a larger share of market early on, makes it possible for HootSuite to out-advertise others in the space and acquire dominance.

Viber (iPhone going mainstream)

Viber has more similarities to foursquare than HootSuite, like the fact that it is free for the end user and it relies on very little or no advertising. Viber depends on network effects to help it achieve dominance on the platform, through the use of mobile contact lists and text messaging. It is similar to HootSuite in the fact that, Viber became an effective product, with the widespread adoption of the iPhone. Here too the strategy adopted by Viber seems to be keeping it cost free for end-users and working towards greater adoption and scale. It is working towards platform dominance helped by the fact that Viber is a good product that arrived early on the scene, is now being driven mainly by network effects.

With a brief look at these three products, we can make reasonable inferences about strategies that can be adopted when thinking about ideas for platform products. When a platform company pushes out a platform (like iPhone with GPS), for product innovators who wish to succeed at dominating the new market space, the innovation strategy seems to be getting to product/market fit as soon as possible and working toward scale & widespread adoption.

However, for innovators trying to identify upcoming & developing platforms, their task involves market analysis, and being able to make reasonable predictions about where a platform is headed. As we have seen, there can be many opportunities lying out there - platforms to be built upon - that is not yet readily identified as one (for example we came to view twitter as a platform for other products much later than facebook). To come up with successful product is dependent on us being able to identify growing and maturing platforms and being able to predict what they will possibly grow in to.

Photo credit - Robert Gaal from Flickr