How the Big Four (Amazon, Apple, Facebook, & Google) Built Their Platforms & Communities
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Phil Simon returns to share insights from his new book the Age of the Platform!
Full recap post here:
David: Phil is the author of a couple of books: “Why New Systems Fail”, “The Next Wave of Technologies”, “The New Small,” and his latest book, “The Age of the Platform.”
Phil, I wanted to get you on the show here today to talk about some of the concepts from your new book and also this concept of how the platform is a new business model that a lot of companies are adopting. So, does it sound good?
Phil: Let’s go.
David: All right. Let’s do it. Phil, why did you write the book, and who’s the book really for?
Phil: I’ll answer the second question first, and maybe this is my conceit, but I really do believe that everybody in business should read this book. It’s not targeted like the last book for smaller companies. I really do think that big companies, small, medium, even independents like myself can benefit from the book.
In terms of why I wrote it, a couple of reasons. First, I work for myself and have for about ten years, for the most part. One of the things that I always think about is if I had to work for a big company, which one would it be and why? There’s absolutely no question, in my opinion, the four big companies that are doing the most interesting things from both a business and technology perspective, David, are Amazon, Apple, Facebook, and Google.
The interesting thing is that three years ago I actually blew up my own business model. I used to make all of my money from one very specific type of consulting, and over the last three years having written four books and starting a publishing company and starting writing, starting different types of consulting, starting a speaking practice, I have built my own platform. If I can do it and HubSpot can do it, which we’ll talk about in a bit, there’s no reason that other companies can’t do it, and the benefits of building a platform and embracing some of the notions that I discuss in the book, I think, far outweigh their cost. It’s just the way that business is going. That’s why the subtitle of the book is “How Amazon, Apple, Facebook and Google have redefined business.”
The platform isn’t going away. We hear a lot about it, but there’s a lot of noise. It’s a buzz word. I wanted to write a book that laid out this notion of a platform and different planks as a business model. So, that was the impetus for writing the book.
David: Gotcha. I can imagine that there would be a number of different types of platforms, right? Do you outline that in the book as well? What are the different kinds of platforms that a company can build out?
Phil: I’m glad that you mentioned that because I hear that word thrown about a lot, and when people say that Google Plus is Google’s social platform and Android is its mobile platform and blah, blah, blah, that doesn’t really strike me as accurate. All platforms are not the same. The planks that I have in my platform, for example, are different than the planks that HubSpot has in its platform, but to me it’s the single Amazon platform. So, you’re on that platform, whether you’re on Amazon.com, whether you’re using the Kindle, whether you’re using Amazon Cloud services. That, to me is one thing, the platform, but you’ve got a number of different planks.
So Google, going back to 1998 really wasn’t a platform. It was just a search company, but it has evolved into a platform by adding different planks. So, to me, Google Plus is one of the planks in its platform because it all goes back to Google, regardless of how Google chops it up.
So ditto Facebook. Facebook may have started as a social networking site, but with games, with Zynga, with AdPages, with all the different things you can do on Facebook, I think it has evolved into a different platform. Each thing that you can do on the Facebook platform is really a plank.
Ditto Apple. Apple used to be a computer company. I think it was in 2003, I forget the date, but they dropped the word “computer” from the name. So now they’re just Apple, and Apple is no longer a computer company. It makes hardware. It sells things in iTunes. It’s going to be streaming movies to compete with NetFlix and make cell phones. Again, it’s all the Apple platform.
But the more planks, I think, the more powerful the platform. That’s a distinction that I make in the book. I hear the word “platform” bandied about a lot, and I don’t think that people use it in a way that makes a lot of sense.
David: Right. So the concept then would be building out your core business into a bunch of different areas and then attracting people in, correct?
Phil: Right. But it’s not just about the core business. I think that the days, David, of the GE model, in which you were either number one or number two in the marketplace, are really coming to an end. Again, looking at myself, I did one type of consulting, but over the course of three years, I started doing different things. So it’s about diversifying, and it’s about embracing failure.
People look at Google Plus, just to continue with the example from before, as this amazing success, right? It had 25 million users in something like a month, which was some kind of a record. Well, people forget that this is Google’s fourth attempt now to get social right.
Phil: The first one failed except in Brazil. Don’t ask me why. Then they had Google Wave and Google Buzz. Now, Google Plus seemed to have gotten it right. So, if you’re trying to build a platform in different planks, you can’t be afraid of failure. You have to embrace uncertainty. So that’s one of core precepts in the book.
David: Okay. Cool. What are some of the other core mantras of building a platform, basically, adopting the community, letting people develop on top of your platform?
Phil: Absolutely. Again, not just to focus on the Gang of Four, but Twitter is a perfect example. You want people to take your product and services in different directions. So if you look at what Twitter’s doing with its open API, they’re letting people figure out ways to use it, and a great example is the TweetDeck.
About six to seven months ago, Twitter bought TweetDeck for something like $40 million to $50 million. So, that’s an example of Twitter looking at a company that took its API in an interesting direction and said, “Okay, we want it. We’re going to buy it.” Twitter, just as an example, has something like one million apps built for it based on the open API.
Now, let’s say that 95% of them don’t work or aren’t very good or are copycat. Okay, fine. That’s 50,000 apps or services that might have some use. So, to answer your question about other precepts in the book, one of the core ones is this notion, David, of external innovation. You’re not just talking about all of the innovation happening within a company’s walls. You’re talking about it all over the place.
Just as an example, I have an app in the Apple store for “The New Small ,” my last book. So I’m an Apple partner. I sell my books on Amazon. I can make money through Google AdSense and AdWords. So, there’s this notion that I’m out there spreading the gospel, and HubSpot does the same thing, if you want to talk about the marketplace which Chris writes about in the book. You guys get it, too. You’re basically saying, “We don’t have all the answers. Let’s throw some stuff out there and see what our clients or prospective clients can do with it.” It’s the same point, right?
David: Right. Exactly. It’s basically we’re focusing on some core issues right now, where we wouldn’t develop for a smaller subset of our customer base. So we’re basically opening that up with all of our APIs in the app marketplace. Yeah, cool.
So, you write about the Gang of Four, as you call them, and I think Eric Schmidt called them that. Basically, are there any smaller size companies that you outline in the book that people watching that aren’t Google, Apple, or Facebook out there, can take some lessons from?
Phil: Absolutely. In fact, one of the bones of contention in a few of the interviews I’ve given is this notion that a small or medium sized company can learn something from Apple, Amazon, Facebook, and Google. I say yes. It’s only a matter of degree. No mid-size company can spend $2 million on Skype like eBay did a few years ago. That’s a given. But again, it’s a matter of scale.
Can you adopt the notion that Google has in which its engineers can play around one day a week? Maybe it’s not one day a week. Maybe it’s one day a month or one day every other week. You want people to take things in different directions, so you want to experiment. You want them to innovate, knowing that in all likelihood these things may not work out.
If you look at the distribution for apps in the App Store, very few of them sell like Angry Birds. My app doesn’t sell tens of thousands of copies, but it’s there. It’s an extension of my platform. It’s another plank.
I profile a company in the book called [inaudible 08:38]. It’s basically a private video platform. So, yes, if want your videos on YouTube, but you can’t control what’s on YouTube. You can’t control if YouTube puts an ad on it. You can’t control what it comes up with for related videos. Maybe, if you are in the gasoline business and you throw up an ad, then Google puts an ad for your competitor.
Phil: With a private video platform, you can control it. You can get the statistics. You can really create your own platform. So there are three or four companies other than HubSpot that I mention in the book, just to show that you don’t need the resources, financial and human, of one of the Gang of Four.
I am a small company of only one, and I have built my own platform. There’s no reason that other people can’t do the same, regardless of the size of their company.
David: Right, gotcha. Would you say that the platform game, is it kind of a first come, first serve basis where it’s hard to compete against an entrenched platform? Like if someone is trying to go against iTunes or something, or the app marketplace, is it a first come, first serve game?
Phil: That’s a great point, and the answer, of course, is it depends. Look at Facebook. It was by no means, as you know, David, the first social network. There was MySpace. There was Friendster. There was Classmates.com. But if you read an excellent book that I referenced in “The Age of the Platform,” “The Facebook Effect” by David Kirkpatrick, he writes about how Mark Zuckerberg back in 2000, 2001 was obsessed with speed. So, if you are first to market and your product can’t support the volume, it can’t scale. Well, you’re going to turn people away from it. No one is going to wait these days 45 seconds or a minute for a page to load.
Phil: In that case, the answer was no, you didn’t have to have the first mover for advantage. Conversely, if you look at Amazon, Jeff Bezos early on said, “We have to get as big as possible, as fast as possible.” Now, again, it depends. I can go on elance.com, spend $30,000 and build a bookstore. To your point, it’s not going to overtake Amazon anytime soon. So there’s something to be said for first mover advantage, but it’s not always a given. It’s not, well, it too late, right?
Again, Google Plus was very late to the social game, but now people talk about it in the same breath as Facebook. Even though it doesn’t have nearly as many users, Google now has incredible social presence. The short answer is it depends.
David: Right. I would say it’s a huge competitive advantage if you have this huge marketplace or this huge platform that you’ve already built, then it’s harder for your competitors to play catch up.
Phil: It is, but it’s not impossible. Things go viral very quickly. If something is useful, you might have a company like Twitter, in the case of TweetDeck, buying it or you might sell a whole bunch of apps. If you look at games, for example, and look at the Facebook statistics, most games don’t get any traffic, but the key ones from Zynga do. Again, there are just a lot of different planks and players.
I thought that with this book I could, if you look at the trees and see the forest and see these ecosystems evolving, because it’s a very different model, as I said before, David, than say the late 1990s. Now, with the technology, with the open APIs, with Cloud computing you can build an app, you can do things in a fraction of the time and cost that it did 10 or 15 years ago, and that’s not going away. That’s one of the reasons I thought the book was important to get out as soon as possible.
David: Gotcha. Cool. So, one of the chapters in the book you talk about tips on building a platform. Can you elaborate on that and share some of those tips?
Phil: Sure. As I said before, you can’t be afraid of failure and experimentation, and I do think that is a general rule. You need to look at other platforms as planks. So, for myself, I run a publishing company and I do speaking. So, for me, having a book makes a lot of sense. For me not to have a plank in the Facebook platform or in LinkedIn or the Twitter platform doesn’t make a lot of sense. So that’s one of the tips. But one of the things that I’m most proud of with this book, David, is that this is not a tactical guide. They’re just too much. I can’t tell the five or ten things you need to do to be the next Amazon.
I can tell you possibly how to sell more things on Amazon but not more things than Amazon. So I do have a chapter devoted to some specific pieces of advice, but I make it very clear that I don’t have the five or ten things that you need to do. One of the key elements of this book is that you can’t predict the future. Otherwise, why would Google have screwed around three times with different social networking options?
By building a platform and embracing this notion of ecosystems, you can increase the probability that when something happens, you can respond really quickly. None of these companies can predict the future. Jeff Bezos in 1994, when he started Amazon, probably wasn’t saying, “Why don’t I start a publishing company, and in 2011 I’m going to make almost a billion dollars in pure profit selling excess Cloud services.” Again, their platform, their ecosystem evolved to when that became a legitimate option, they could jump on it really quickly.
Ditto iTunes. There’s no way that as prescient as Steve Jobs is, 20 years ago he said, “Yeah, we’ll be doing everything on something called an iPhone.” But, again, they put themselves in position to be successful, and I think that’s a lesson for all companies, regardless of size. This book is about embracing the platform in uncertainty and embracing the unknown and not being afraid to fail, because if you just play by the rules and you’re very conservative and you only do things that you think will work, it’s probably going to be too late and your competition will eat your lunch.
David: Right. I think it’s good that you outlined the Gang of Four there. It’s kind of a good model to go off of. Here at HubSpot, we actually model a lot of the stuff that we do after Salesforce.com because it grew so fast. So we definitely adopted it and out of the Gang of Four as well, but I think that’s also an important piece that really modeled a lot of the things of successful companies, and that’s why you profile them.
Phil: It is, but again I think it’s important to note that you can’t just follow their game plan. Your point about first mover advantage, Apple moved very quickly to make iTunes the standard for buying legal music. That’s their important disclaimer, but they had to battle the record industry, if you look at the deals that Steve Jobs has struck with the record industry and with the movie industry. Having content, having one-stop shopping, that’s another piece of advice in the book. You want to make your platform as easy as possible, and this extends down to the individual businesses. I don’t want you to have to go to a separate site. So, if I’m a small business owner, and I see this all the time, well, this is our site, and this is our blog. Well, why not combine them into one? Why not keep people on your platform as long as possible?
Again, you want to have planks on existing platforms. So don’t spend $10,000 trying to build this inherent functionality in your website to support videos. Be on YouTube. Use Vimeo like I do on my site. You can take advantage of these other platforms by making them planks in your own. That’s an important concept.
David: Right. Cool. In another chapter in the book you talk about emerging platforms. What, in your mind, do you see as emerging platforms?
Phil: Well, again, there’s no reason that the Gang of Four has a monopoly on platforms. Everybody is talking about them. To me, Twitter obviously is a very interesting platform. It’s not quite, in my opinion, at the level of Facebook yet, but it’s getting there, again, through the partners in the ecosystems.
WordPress, which I use to run five of my websites. Again, you’re talking about, I think, 14% of the top thousand websites are running on WordPress, 30 million websites, not to mention a whole community or ecosystem of developers and companies that take WordPress in different directions. I employ people to work on my own websites because I’m not a proper developer.
Then, you’re also talking, as you mentioned before, about Salesforce.com and Force.com. They are trying to let people build different bridges to and from different data, giving them apps, letting them access their information on iPad or iPhones, so they don’t have to boot up a laptop. They don’t have to go back to the office.
So those are just some of the ones that I mentioned in the book, but people understand this notion of platforms. If you look at Y Incubator or some of these other conglomerations, people are talking about it. They want to be planks. They may not want to replace Facebook, because that’s a tall order, but they want to see how they can integrate with Facebook.
Phil: Facebook makes it very easy to do that. Of course, there’s a danger with platforms. If Facebook doesn’t like you, they could cut you off. Some people say, well, isn’t Zynga, which is supposed to go public, a risk? I say not really because yes, they’re reliant upon Facebook, even though they’ve announced a deal with Google, but Facebook is also reliant on them. Facebook has this notion of credits for 30% of a cut, so why would Facebook mess with its partners.
It’s almost like this uneasy truce. In the book I talk about frenemies and co-opetition. You’re kind of friends with these companies, but you’re kind of competing with them as well. It’s that uncertainty that people have to get their arms around. You’re not seeing the same partnerships that you saw 10, 15 years ago with the bars, the value added resellers and the long legal processes. Things happen very quickly, very organically. It’s a much faster time right now.
David: Right. Do you outline anywhere in the book marketing to people to basically build on top of your platform? I think that would be interesting to discuss.
Phil: It is, and if you look at what the Gang of Four does with marketing, I think it’s very different than traditional marketing. I would argue it’s not marketing to people and not marketing at people. You’re almost letting the users and the consumers market for you. So, when you see someone with an iPad, you look over and you might have a conversation. Or I just bought an iPhone. The first thing I’ll do when I see someone with an iPhone, I’ll say, “What’s your favorite app?”
Apple recently has done more with advertising for iPad. But last year I think they spent 1% of their total company budget on advertising. That’s not a big number even though it was $600 million Apple had about $60 billion in revenue.
Up until recently, Google didn’t advertise. Think about, going back to 2001, 2002 when Google first became a verb, people would say, “Oh, just google it.” That is so valuable. In the book, I discuss Google as a verb and what that means to the Google brand, what that means for marketing. When someone says, “Oh, just Facebook me” or “Just Google it”. When people write books, they say, “Can I find it on Amazon?” That word-of-mouth is so much more valuable than finding the right email letter.
Phil: The marketing, again, some of these companies do traditional advertising, but the value they get from people like you and me evangelizing these platforms and using them [inaudible 19:53] is so much more valuable than running a newspaper ad.
David: Right. I would say when a company is pulling in people and building on top of their platform, it’s a win-win situation where that third party, they’re also gaining monetarily or whatever way, and basically your house is being built up as well. So I’d say it’s a win-win.
Phil: That’s a great point, David. In fact, one of the quotes in the book I have is from a guy by the name of Jordan Rudess, and he is the keyboardist of the band Dream Theater, which is one of my favorite bands. I’ve actually met the guy. So, when he’s up on stage performing in front of 12,000 people, playing his app Sample Whiz or Morph Whiz on his iPad, he is basically demoing the product for 12,000 people, many of whom are musicians, many of whom have iPods or iPads. So they can buy it there. So he’s making money for himself, but also because 30% goes to Apple, for Apple, too.
Phil: You multiply that by 450,000 apps. Again, even if most of them don’t make money, this is a different notion of marketing. People don’t want to watch apps. But if you see some guy playing his iPad and you go, “How does he do that? I’m a musician. I want to do that, too, and oh, I can buy it right here on my iPhone,” that is a different mode of marketing.
David: Gotcha. Cool. In the final chapter in the book, you talk about what’s beyond. So, where do you see this whole platform movement going into the future?
Phil: I think the platforms will become more and more important. Technology keeps changing faster and faster. People are looking for convenience and the one-stop shopping. We don’t want to go to 50 different websites. For example, in the book I mention how in my normal day I’m always on Google. If every other site on the Web went down but I could still have Google, that would be okay with me.
I don’t want to have to remember all of these different sites and all these different passwords. So, for Google Plus, they may not have all of the functionality, but if I can use that to have a ten way chat and not have to pay for another service, that might be good enough. I really believe that platforms will become more and more important, and more than what I believe, David, if you look at the leaders of these companies with Larry and Sergey and Zuckerberg and with Bezos, and now with Apple even though it’s different without Steve Jobs right now, they understand as well that nothing is guaranteed.
If you look at Microsoft and Yahoo, AOL and some of the other companies that ten years ago were at the top of their game and now they’re struggling, AOL basically is irrelevant right now. These companies get the fact that if they don’t continue to change and evolve and embrace uncertainty and experimentation and risk and ecosystems, they may not be around either.
Google, even though it’s killing it, has for years been afraid of Facebook because with social search, what if I don’t want to search the Web? What if I want to ask my friends? And then, the Facebook API, which as you know, is generally open to all sorts of developers is closed to Google, right? Google and Facebook, that’s by design. Facebook wants to keep that data [inaudible 23:10]. In five years, do I think that the Gang of Four will still be around? Absolutely, but not if they’re complacent, and they know that.
David: Right. Unless they open up and actually let other people build on top of their platform. Cool.
Phil: It’s a fine line. It’s a fine balance though because Apple isn’t the most open company in the world. You can’t put porn or racist or certain apps in the App Store. That’s not necessarily a bad thing, but there are instances . . . I was reading a story a couple of years ago about a guy who had spent a million dollars for his company marketing his app, which took more than a year to get approved in the App Store. Again, it’s this notion of uncertainty and dealing with partners who, all of a sudden, may not be your partners anymore, but you have to navigate this world. That’s the way that things are going. Companies don’t want to hire tens of thousands of people to develop it. They’d rather throw an API out there and see what people can do with it.
Phil: Or turn and say, “Okay, this is good. We’ll buy this, or we’ll hire these people.” You have to embrace this new world. I think that we’re not going back to the pre-platform age. That’s why I call the book, “The Age of the Platform.”
David: Awesome. So, Phil, where can people find you online, and where can people find the book?
Phil: Well, my main site is still Simonsystems.com. At Twitter, I’m @PhilSimon, and the site for the book is TheAgeofthePlatform.com.
David: All right. Awesome. Well, thanks for coming back on the show, Phil, and we’ll get you back on again and again and again.
Phil: All right. I’ve got a lot to say.