The problem with platforms

There was a rude awakening last week for some in the new digital world. When it comes to platforms, there are owners and there are renters.

Apple flexed its muscles and sent shockwaves through the publishing world with news it would take a hefty 30 percent cut on subscriptions for the iPad. Many publishers grumbled this was unreasonable, seeing as they’re still figuring out business models that support digital distribution. Then, late Friday, Twitter rocked publishers of popular clients like Ubertwitter and Twidroyd by turning off their access to Twitter’s API for what Twitter said were violations of the terms of use. Without that access, the apps are essentially worthless. By the end of the weekend, the clients were back in Twitter’s good graces, but a message was definitely sent about who sets the rules.

The lesson in both cases: beware of building on platforms. There are many upsides to the evolving world of digital platforms. Thanks to a powerful platform like Facebook, Zynga was able to build a rocketship of a company that was recently valued at more than $7 billion. Platform companies like Facebook, Apple, Twitter are seductive. Building on top of platforms means a publisher, tech company or brand doesn’t have to recreate the wheel of building its own tech infrastructure while enjoying viral distribution.

But the downside is these third parties are just that: they are third parties. They don’t own, they just rent. That means they’re at the whims of their landlords, whether it’s Apple, Facebook or Twitter. Ideally, competition will help keep platforms in check. We expect Yahoo! will make some accommodation for a paid business model as it rolls out Livestand.  And Google also rolled out a content-subscription service last week week that was a much more palatable program for publishers. The problem, of course, is that Apple pretty much owns the tablet market — a dominance it doesn’t seem likely to lose anytime soon.  It used to be you didn’t mess with a publisher who bought ink by the barrel. The rule is now, clearly, you don’t mess with platforms that hire engineers by the dozen.

“If you use the API that we support at great cost with our infrastructure and engineers, you sign up to abide by the rules for its use,” the company pointedly said. Translation: we make the rules around these parts.

Zynga faced the same problem with Facebook. It grew a huge business on Facebook, only to be told to switch to Facebook’s virtual currency. Now, reportedly prepping for an IPO in 2012, Zynga is diversifying, building apps on the iPhone, inking deals with Yahoo! and others, and developing its own gaming platform, Zynga Live.

David Kirkpatrick, the author of The Facebook Effect, once told me that the company made a conscious shift from talking of itself as a “utility” because that implies strict governmental oversight. Instead, Facebook prefers to use the term “platform,” which at this point means it sets the rules as it sees fit.

Even brands need to think twice about their reliance on platforms. It became fashionable to diss the microsite in favor of “fishing where the fish are” on Facebook. Many brands are skipping their sites altogether in their TV spots in favor of trolling for Facebook Likes. This too could put them in a tough spot.

Two week ago, with little notice, Facebook suddenly changed how brand pages operated. Brands and their agencies were forced to scramble to adapt, a situation akin to Coca-Cola suddenly finding someone could change its beverage formula without having any say. It makes you wonder if brands will begin to hedge their bets by redoubling efforts to drive traffic to their own sites, where they control all the data, rather than to Facebook.

Platforms aren’t going anywhere. They’re likely to get bigger and more potent. Those owning the platforms want thriving ecosystems atop them, but they will from time to time rattle the cages in which the rest of the animal kingdom resides. There are many upsides to building on platforms, but there are plenty of risks to manage as well.

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