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The rise of the platform company

The rise of the platform company is one of the things that excites me the most at the moment.

There are two very different type of platform companies: technology platforms and distribution platforms. The former provide some level of tech infrastructure that would take years and millions of dollars to develop internally. Small companies can leverage the technology and focus on their core products.

Tech platform are just beautiful, one of the best things that capitalism, market and competition have brought us. They accelerate innovation in a way that was unimaginable just a few years ago.

Amazon Web Services is such an example. Others include Stripe, Yodlee, Parse, Twilio and Heroku. All these companies understood that many smaller startups and businesses needed to reinvent the wheel every time, and saw the market for providing one simple, powerful and cheap solution to be leveraged by many to solve their problems. Selling pickaxes in the gold rush.

The second type of platform is the distribution platform. When you reach a high number of users that use your product, a very powerful mechanic is “opening the platform” to third-party developers, giving them the ability to build features and apps that don’t exist yet and would probably never do. This is what Twitter and Facebook did back in 2007, and what Zynga is going to do with its new Zynga.com platform. It’s just the right thing to do. Opening up your platform to other apps means giving users the ability to use apps and games that could never have possibly developed in a lifetime, while creating a new way to monetize. It’s scaling a company to millions of developers instantly.

These companies usually don’t offer massive tech benefits, but have the incredible power of offering a huge audience to your product. Ask Zynga.

When this becomes really powerful is when you mix both and provide a technology platform with an added distribution platform.

I like to think of this approach as the operating system approach. An OS gives you a solid tech platform to buil on top of, and a huge audience to market your apps to (we could include the internet and electricity here too). Apple then took this approach to the next level with its App Stores, which are a formalization of its distribution platform.

In the internet space building both a tech platform and a distribution platform is extremely hard, we’re seeing companies try soft approaches (either developing simple tech with powerful built-in distribution, or building high-tech platforms and trying to add some distribution aspect) but it’s still very difficult to achieve.  Airbnb, and more generally marketplaces, might be included in this soft-category, given that the technology they provide is usually not that hard to implement. Kickstarter has taken it up a notch and Disqus is another great example.

Still I don’t feel there’s anyone who has cracked the mix just yet in the internet space. The first company that will be able to provide both a solid technology platform, coupled with a huge distribution network, will end up being the next big thing, or as a startup might put it “Apple for the Internet”.