New Economics of Advertising: Why Platforms Are Letting Us Down

Why Platforms Are Letting Us Down - And What They Should Do About It

In good times everyone wants to be a platform. But when times are bad and platforms are just an expense, the resources suddenly shift away. The recent re-design of Facebook, the slow down of Google's Open Social, and Flock closing its extension site - these are all part of the same pattern. Platforms that don't have monetization wired in are only good for marketing. This is why the platforms of the future need to think about not just short-term marketing and buzz, but long-term sustainability and monetization.
Last week Flock's community manager Evan Hamilton emailed all developers who had submitted extensions to Flock to announce that Flock will no longer support most of the extensions hosted on extensions.flock.com.
The justification was that Mozilla was doing a better job hosting and promoting the add-ons, and the majority were the same for Flock and Firefox. Since Flock does not have enough resources to support the extension site, Evan announced the decision to "cut the fat that is our unwieldy extensions system". (Note the keyword 'fat', it will be important in the rest of the post).
In itself this move was not surprising. Flock's team has just released version 2.0 of its social browser and has other battles to fight. IE8 is coming out soon with innovative features. Mozilla is racing forward with Ubiquity and the upcoming Geo-aware Firefox 3.1. And Google threw its hat into the browser ring with Chrome, so competition is getting tight. For Flock to be a player in the browser market, it needs a razor focus on building a base of diehard fans. Extensions are not helping much in that respect, they're an expense, so it was logical to cut them.
Facebook Platform - The Big Up and The Big Let Down
When the Facebook platform was unveiled in 2007, it was called genius. Never before had a company in a single stroke enabled others to tap into millions of its users completely free. The platform was hailed as a game changer under the famous mantra "we built it and they will come". And they did come, hundreds of companies rushing to write Facebook applications. Companies and VC funds focused specifically on Facebook apps.
It really did look like a revolution, but it didn't last. The first reason was that Facebook apps quickly arranged themselves on a power law curve. A handful of apps (think Vampires, Byte Me and Sell My Friends) landed millions of users, but those in the pack had hardly any. The second problem was, ironically, the bloat. Users polluted their profiles with Facebook apps and no one could find anything in their profiles. Facebook used to be simple - pictures, wall, friends. Now each profile features a zoo of heterogenous apps, each one trying to grab the user's attention to take advantage of the network effect. Users are confused.
Worst of all, the platform had no infrastructure to monetize the applications. When Sheryl Sandberg arrived on the scene and looked at the balance sheet, she spotted the hefty expense that was the Facebook platform. Trying to live up to a huge valuation isn't easy, and in the absense of big revenues people rush to cut costs. Since it was both an expense and users were confused less than a year after its glorious launch, Facebook decided to revamp its platform.
The latest release of Facebook, which was released in July, makes it nearly impossible for new applications to take advantage of the network effect. Now users must first install the application, then find it under the application menu or one of the tabs, then check a bunch of boxes to add it to their profile (old applications are grand-daddied in). Facebook has sent a clear message to developers - the platform is no longer a priority.
Google's OpenSocial and The Me Too Syndrome
Apparently Google was threatened by the Facebook platform. Its quick response was OpenSocial, the open platform for social applications. Unlike Facebook, which was proprietary and closed, Google's was open to everyone. When OpenSocial was announced, techies raised their eyebrows - it looked raw and unpolished. Some of the existing iGoogle container APIs were mixed in with a new contact sharing library. But, being Google, a lot of people signed up to support it.
Fast forward one year later and how much has been done? Well some companies did implement some elements, but the overall buzz died. Why wouldn't Google put more resources and marketing behind it? Because now it doesn't matter. The Facebook platform play is over and so the marketing strategy called Opensocial is not a top priority for the search giant anymore.
Why Apple's App Store Will Be Different
Next we turn to the latest platform getting buzz, Apple's iPhone App Store. At first glance it's much like Facebook, but in reality it isn't. Firstly, the user profiles aren't visible - you can't see applications installed on your iPhone. Each user can decide which apps to get, based on a simple review-based dashboard. There's no promise of a massive network effect, although there's a simpler user experience.
Importantly, Apple wired the monetization into the App Store right from the start. Sure there are free applications, but for companies that want to invest resources and play on the iPhone for a long time, there is an instant, simple opportunity to monetize. Note that paid applications get priority listing in the App Store, which is no accident.
Apple took care of the most important part of the equation - the transaction. It was also able to insert itself in the middle and recoup some costs associated with building the App Store. In the future, if it takes off and sustains the growth, App Store will ring in significant revenue for Apple. Jobs and his team were smart to wire monetization into the platform at the outsert.
The Future of Platforms
Where does all this leave us? Certainly it's absurd to say that having Web platforms is a bad idea. Yet we're left with a bitter taste in our mouths after the latest moves from some big platform players. The platforms of the future need to think about not just short-term marketing and buzz, butlong-term sustainability and monetization. Here are some questions that companies need to ask themselves before delivering a platform:
Why are we building a platform?
How will we monetize this platform?
Will the platform make us money, and how much will it cost?
How will applications be able to monetize the platform?
Can we support the platform for years to come?
Our culture of sensation and free makes it much harder for platforms to think deeply and be disciplined. Google felt they had to come out with something to stop Facebook's momentum. Facebook rushed to create a completely open infrastructure; and it backfired both for users and developers. Having been burnt by Facebook, small and large companies alike will now think twice before investing in a presence on platforms. This is a shame, for we need platforms and we need them to work well.
Let us know what you think about the opportunities to plug into major platforms? What are your thoughts on the recent platform dynamics that we have witnessed?