Small app developer shops have had a great couple of years. Facebook, Apple, Twitter, and a host of other platforms opened up and let these third-party developers build games and other apps to entertain their users, and in the process allowed developers to build multiple monetization channels as well.
It was a great move for the platforms — all those cool apps brought in more users and kept those users coming back. And it was great for the developers who would otherwise have found it hard to drum up an audience for their apps. But it looks like that trend is probably in danger.
In recent weeks we’ve seen both Twitter and Apple clamp down on developers, adding new restrictions to their developer agreements. (See VentureBeat editor Owen Thomas’ assessment of Twitter’s motives here.) It looks like the platforms are eager to take over what appear to be lucrative business opportunities those developers helped to build. Now the question on everyone’s mind is, exactly how much control are the platforms going to be exerting here? It may be that wresting back control from the stakeholders is imperative if a platform is to grow, but if so, how do the stakeholders that helped popularize a platform benefit?
Whether we’re talking about Twitter launching an ad network that could challenge other Twitter-based ad players, or Apple’s recent decision to ban Flash-to-iPhone conversion tools, or the fact that Apple’s new iPad device lacks external ports, it’s clear there’s a trend towards control here. Apple has never been considered an open system, but the actions of the past week indicate that it’s going even further down the road to a closed ecosystem. And then there’s Google’s Android platform. Android’s raison d’être was to enable openness and allow the partners in its ecosystem to decide how closed they want to go. Yet, Google, as the curator of the platform, decided to introduce a new distribution channel and differentiate between phones based on its own criteria. Meanwhile, social networking giant Facebook has been busy, too. The social network has long said that its users should be in charge of their own privacy settings. But a few months ago, it changed tack and took on the role itself.
Why is this happening? Well, there are many reasons, but they tend to fall into three broad categories:
Erect Entry Barriers: Facebook, Google, and Twitter have all grown and scaled on the back of the open web (where access to services has been unfettered by any gatekeeper and consumers were free to switch services with minimal switching costs). They have been able to attract users rapidly because the web has been an open playground, with users gravitating to services that best served their needs. This is very unlike the physical world, where competition is highly uneven in different geographies and location inherently serves as an entry barrier. Increasingly, these companies are recognizing that while the open nature of the web has been a great contributor to their growth, they need to erect entry barriers one way or the other to limit competition if they want to sustain growth at the same rate. By taking steps to control access, features, development tools, or buying out competition, successful companies are looking to raise their control over the markets that they operate in. Apple’s lack of USB ports (primarily aimed at discouraging sideloading) and Google’s “Superphone” requirements for its distribution channel are both indicators of such entry barriers. These barriers will usually not be obvious to the end-user, but they certainly limit the ability of third-party players to operate and interact at will.
Build Platforms that Can Scale: As companies grow larger and more successful, a key decision they face is how much to invest in new products versus how much to continue investing in their existing assets. While there are pros and cons to both approaches, when companies decide to continue investing in existing assets by, for example, building new products/services on top of existing ones, they’re more inclined to protect that investment by exerting more control over their base products. Apple’s approach with its various product lines clearly exemplifies this approach. Starting off with the iPod ecosystem, Apple built the iPhone. On top of the iPhone OS, it has now built the iPad. Note that the iTunes way to interface with the product remains a constant, while the underlying core remains the same for apps (iPod Touch, iPhone and iPad). Having built a platform that Apple has now scaled to multiple products, the company has to ensure that it retains significant control. And that explains its latest move to keep companies such as Adobe at bay — companies that have a professed multi-platform multi-screen strategy that obviously gets in the path of Apple’s single-platform, multi-screen strategy. Similarly, consider Google’s new online-only distribution channel for Nexus One. A movement towards distribution is a first for Google, since the company had thus far allowed device vendors to forge their own distribution tie-ups. While these are still early days to gauge the success or failure of this channel, the intent is pretty clear. As Google continues seeing increased uptake of Android, it wants to involve itself not just in enhancing Android features and providing web services on Android phones but in expanding this presence to newer areas.
Grab the Early and Late Majority Crowd: A key feature of most web and PC-based services remains that most users tend not to tinker around with default settings. The implicit understanding is that if they are comfortable installing/using a service, then they are fine with the settings suggested by the provider. And this user behavior is exploited by service providers to further their goals. For instance, Facebook’s recent privacy settings changes are aimed at making as much profile info public for as many users as is possible. In a similar vein, Twitter’s move to acquire Tweetie or that of releasing a semi-official Blackberry app can be seen as an attempt by Twitter not only to control its platform but also to encourage users to access it through their own application. The underlying assumption here is that, while the innovators and early adopters (read up here on the theory around diffusion of innovation) might care too hoots about using an “official app”, it is the next wave of people that are the low-hanging fruit. And to this large mainstream crowd, Twitter does not really want to project the impression that the service is significantly separate from the platform. While there are no obvious advantages to using one app over the other currently, that will likely change, as future versions of “official apps” are likely to be more tightly integrated with Twitter’s monetization model and will potentially offer more incentives for users to stick to them.
Given these advantages, it’s clear why platforms would feel the pull to take more control over their offerings. But does enhanced control really deliver in the long run? An answer to that question might come from a different set of players, the mobile operators.
Having started off with highly controlled and closed ecosystems, mobile operators have flourished offering their services in a lock-down fashion. However, of late, they have begun to realize that while closed systems are great for milking consumers, they are not sustainable in the long-run, since the more closed a system gets, the easier it becomes for a disruptive entrant to create havoc. You only need to take a look at the rapid collapse of operator walled gardens (where users were not allowed to browse any mobile site beyond the operator portal and a few select partner sites) and spread of flat-rate mobile data plans (that enable unfettered access to the mobile web) to gauge the pace of this change. Consequently, they are now attempting a painful transition to open ecosystems.
It is ironic that a key reason these mobile operators are beginning to change their business models is because they’re trying to emulate the very same Internet players who are now closing up their offerings. And as the two worlds — mobile telecom and the Internet — converge, expect players from both categories to switch business and operational models more often.
In the meantime, what does this mean for stakeholders in the Internet platform ecosystems — the app developers? Are they going to be left high and dry? I would reckon not. Going by past evidence, closed ecosystems, while being tremendously helpful to the platform owners, still allow for opportunities to be made at the edge of the ecosystem in areas the platform owner deems too small to bother with. The difference in this situation is that there are now a lot of edges — wide edges — where innovative developers can create products that can stand on their own whilst leveraging the larger platform. At the same time, services that offer limited value-addition will fall by the way as the platform owners decided to expand.
So it is really up to stakeholders to decide if they want to be offering me-too services or building out truly innovative offerings. But keep in mind that while platforms are going to continue to exert control over their ecosystems going forward, that strategy will only last until the next disruptive company springs.
Companies: Apple, Facebook, Google, Twitter