In anticipation of the Apple Watch launch, many are considering whether to make a bet on the new platform. Will it be another Apple home run product with significant new platform opportunity, or not? This is part one of a two part series with my take on that question.
Over the years I’ve been using a framework to evaluate new platforms based on my observations from working at Facebook and Microsoft, two companies responsible for creating, managing, and at times, mismanaging great platforms. The framework involves three factors and associated questions:
- Technology enablement – Can something be done that wasn’t possible or easy to do before?
- Distribution – How does the platform help you gain new users and engage existing users?
- Business model – Does the platform provider have a clear business model that you can align with to sustainably share in the value created?
Technology enablement has been the historic core focus of companies building software platforms. Microsoft’s DOS and Windows are two examples of platform design driven by technologists on both the build and the buy sides. Historically, APIs, tools, documentation and compatibility were the focus of the platform owner because that is what technologists cared about. As computing became more mainstream, technology enablement shifted to table stakes for creating a valuable platform. This was further accelerated when open source platforms such as Linux, MySQL, and others extracted no value for using their technology. Adding GPS to smartphones, to give you my favorite example of technology enablement, has spawned multiple new killer applications, like Waze and Uber, that weren’t previously possible.
For technologists this was often the least obvious factor to evaluate, but as any entrepreneur will tell you, “they will NOT come if you build it”. Over time as distribution (nee Marketing) has primarily moved to digital channels, ownership of customers has shifted to the platform owners instead of traditional intermediaries like retailers, wholesalers, etc. Prior to this disintermediation, platform owners offered co-marketing, referrals, default placement and financial incentives as the key forms of distribution given the complex value chain. After this disintermediation, Facebook and Apple took these concepts to new levels of scale with Newsfeed, Notifications, and the App Store, as central features within their platforms. Generalizing beyond these examples infers that platforms with direct customer relationships can offer structural distribution, such as access to friend lists and address books, or they can offer surrounding distribution such as merchandising in an app store.
One of the biggest risks for app developers is that the underlying platform will subsume their app’s functionality into the core platform. Newer platforms, such as LinkedIn and Twitter, introduced another version of this risk with their shifting policies around acceptable platform use cases which can largely be attributed to misalignment of business models (e.g., viral messaging spam causing user churn or building a competitive product that uses the platform’s proprietary data). Apple has shown the wisdom of designing a business model into the architecture of a new platform. By mandating use of the in-app payment solution with a fixed revenue share and clearly defining use cases that were off limits they created a sustainable app economy worth tens of billions of dollars. If a platform owner isn’t thoughtful about aligning its business model with developers, it’s possible for tremendous value to be quickly created and destroyed as developers abandon platforms quickly.
I’m extremely eager to learn more about how Apple has designed the Watch platform for application developers. However, until the March 9th event occurs, betting on the Apple Watch is a speculative investment for most. Given Apple’s overall iOS ecosystem across iPhones, iPads and soon the Watch, it makes sense for current iOS application developers to take the risk of investing in the Apple Watch platform because of the overall iOS distribution incentives Apple controls. Once I have a chance to understand what is announced I’ll likely follow up with an assessment using the framework I outlined above.