A Platform Field Trip: 9 Principles from the Best Cloud Companies in the Bay Area
by Scott Brinker, VP Platform Ecosystem, HubSpot
“We’re going on a field trip,” announced HubSpot CEO Brian Halligan.
As part of HubSpot’s journey to become a lovable platform company, Halligan insisted his entire executive team get out of our offices in Boston and go meet with leaders of over a dozen of the best cloud-based platform businesses in San Francisco Bay Area.
What worked for them? What didn’t? If they could go back and do it all over again, what would they do differently? Our mission was to tap as much of their wisdom as possible to help guide our own platform strategy.
Unfortunately, I can’t reveal the names of the companies or executives we met. The deal was that our conversations would be off-the-record, to encourage as much candor as possible. But if you mentally list the most famous platforms in the Bay Area, you’ll have a pretty good sense of who we visited.
Much to our gratitude, they were all incredibly open and generous in sharing their experience and insights with us. Over the course of one whirlwind week, we got a master’s education in platform dynamics from some of the top minds in the field.
It was riveting, especially for a platform nerd like me, to learn how these different companies each thought about their platforms and ecosystems. What was surprising to me — although in retrospect, it probably shouldn’t have been — was how many beliefs they held in common.
It struck me that those shared beliefs form a great set of pragmatic platform principles.
Because they constitute aggregated wisdom, I felt we could share them while still respecting the anonymity of the individuals we met. Each of these principles were advocated by multiple companies, so you can’t attribute them to any one.
1. Want to be an attractive platform to ISVs? Build a large customer base.
Platforms are flywheels. More developers create more apps, which attract more customers, who attract more developers, who create more apps, attracting more customers, ad infinitum, and everything sails up and to the right. (At least that’s the conceptual ideal.)
The challenge, of course, is kickstarting that virtuous cycle. Chicken or egg? For many platforms, the only dependable approach to this “cold start” problem is to initially go to market with something that is attractive to customers on its own, stand-alone merits. (For example, the concept of “come for the tool, stay for the network” has been used to launch more than a few social platforms.)
It’s a common pattern for a firm to begin life as a product company, acquire a large number of customers, and then seek to transform into a platform company. Caterpillar to butterfly.
The good news is that this approach reliably solves the cold start problem. If your product acquires a large customer base, you will naturally attract interest from developers, who see you as a potential distribution channel for their own inventions.
The challenge, however, is that the transition from product company to platform company is not an incremental step. It requires you to adopt a qualitatively different mindset, shifting from a product-oriented value proposition to an ecosystem-oriented one.
2. Platform companies should be measured by the success of their ecosystem.
If I could take away one piece of wisdom from our field trip, above all else, it would be this credo: a platform company should be measured by the success of its ecosystem.
A product company simply focuses on growing its revenue. A platform company, however, works to grow both its revenue and its partners’ revenue. Because if a platform isn’t delivering value to its partners, the flywheel of more-apps-to-more-customers grinds to a halt.
Of course, all companies are ultimately judged by the success of their customers. But a great platform company treasures platform partners and is committed to their success too. It sees them as a key driver of customer success, thanks to the incredible range of specialized and complementary capabilities they offer.
Success of the ecosystem can be measured directly by the amount of business that partners generate through the platform. The combined revenue of the platform company’s own products and the solutions that partners sell on top of the platform is the “economy” of the overall ecosystem. A healthy economy grows revenue for both the platform and its partners.
Becoming the steward of the ecosystem’s economy is one of the big shifts required in moving from a product mindset to a platform mindset.
3. When it comes to platform partners, favor quality over quantity.
Be wary of counting the number of partners in your platform ecosystem as a vanity metric.
True, other things being equal, the more partners in your platform ecosystem, the better. But other things are not equal. An ecosystem stuffed full of junk can be disastrous, because junky apps damage customer confidence in your platform.
Platform ecosystems live or die on the trust customers have in the quality of partner apps.
So it’s important to implement strong quality control mechanisms in your platform program. These can be internal processes, such as certifications or app reviews and monitoring of app performance. They can be external inputs, such as ratings and feedback from customers. Ideally, you want both.
And in a cloud world, where apps change over time — or, in some cases, fail to change over time — you should keep a pulse on existing apps, to detect any degradation from entropy.
Don’t fall prey to the temptation that “something is better than nothing” for a particular app or integration. A little tough love with partners — holding them to a high standard for certification and other customer experience SLAs — is beneficial for the whole ecosystem. Because again: ecosystems live or die on trust.
4. Platforms are long tail markets and that’s part of their magic.
That being said, don’t conflate quality with a partner’s size or preexisting brand equity. After all, most successful platform ecosystems are inherently long tail markets — which is the dynamic that makes a platform different from simply a handful of partnerships.
The head contains a small number of apps that are popular with a large volume of customers. These are very often apps from well-known brands, market makers that drive a lot of installs. They’re like anchor tenants in a mall.
But on the other end of the spectrum — the tail — is where all sorts of cool experimentation happens and new innovations emerge. There are often a ton of creative, niche use cases here for vertical markets and highly-specialized capabilities. Budding entrepreneurs, micro-ISVs, and service providers such as agencies that are looking to “productize” their ideas can all thrive in the tail of your ecosystem.
The very nature of a long tail is a large number of such partners. Each one individually may only have a small number of installs in your platform. But in aggregate, all of these long tails apps combine to serve a huge portion of your customer base.
Therefore, your quality control mechanisms shouldn’t be tied (solely) to a partner’s scale. You want quantity and quality. (But when you have to choose, choose quality.)
5. Be wary of premature direct monetization.
A common pattern on platforms is that the more apps a customer integrates into their system, the higher their retention rate will be — for both the platform and the apps integrated into it. This makes sense. Once you’ve connected a set of tools together and configured the workflow and data flow between them to your exact needs, you’re more likely to be satisfied and less likely to want to pull them apart.
The whole is greater than the sum of its parts once you’ve made the platform “yours.”
That’s the foundational incentive for platforms to build a great ecosystem. It helps them win new business. (“Do you have X capability?” “Why, yes, there’s a great partner app for that!”) And it helps them retain that business. The same dynamic benefits ISVs on the platform. (“Do you work with Y platform?” “Why, yes, we have a terrific integration with them!”)
This is indirect monetization for the platform company. They’re not directly receiving money as part of those ISV apps being installed. But having those integrations happen nonetheless has a very real, positive financial impact.
That said, platform ecosystems can also become a direct source of revenue. The most common approach is to allow customers to purchase ISV apps through a marketplace. The platform can then take a percentage of that transaction in a revenue share model. For instance, Apple earns a 30% cut of all sales through its App Store.
However, many platform teams cautioned us about falling prey to “premature monetization” — moving to a direct monetization model, such as revenue sharing, too quickly, before you have proven that you can deliver significant enough value to those partners.
Partners are willing to pay for distribution through a marketplace if it significantly benefits their business — reaching new customers they might not have been able to reach before, increasing the velocity of customer acquisition by making it easier and faster for customers to install these apps and try them out, having billing seamlessly integrated, and so forth.
But make sure that the value to partners exceeds the value captured by the platform company, so it’s a win-win-win for the platform, partners, and customers.
6. Be transparent about your platform plans and policies.
Partners want to know where the platform is headed. What features are on the roadmap? What new opportunities will be opened up for ISVs? Where is the “white space” for partners to build solutions without having to compete with the platform itself?
Even if you can’t publicly share a roadmap, sharing a high-level direction with partners under NDA can be extremely valuable. Multiple companies we spoke with strongly advocated sharing at least product themes, if not specific features. (A terrific example of this transparency is how Slack publicly shares a Trello board of their platform roadmap.)
The trust that partners have in your platform is as important as the trust that customers have in your ecosystem. If partners trust the platform company, they are more likely to invest in building their businesses around it — which benefits the platform and its customers. In the words of one platform company CEO, “Developers are the most critical people on the planet — and you’ll lose them on a broken promise.”
To earn that trust with partners, you need to be transparent. Sharing a roadmap is a good start. But transparency also means being upfront about changes to other policies or opportunities that evolve within the ecosystem. How do you go about deciding which partners are featured in a directory or given access to a co-marketing campaign, for instance?
If you can make benefits as algorithmic as possible — that the rules and the merits by which partners are given opportunities is determined by objective criteria, not “who you know” — it can go a long way toward making partners feel that they are respected and valued.
And when plans or policies are going to change, let partners know as early as possible.
7. Keep a fair and level playing field for ecosystem participants.
Platform companies shouldn’t play kingmaker, artificially picking which partners should “win” a particular category. One of the greatest benefits of a platform ecosystem is that it can be a true market economy — multiple partners within a category can compete with each other to deliver the best solution for the platform company’s customers.
Let customers pick the winners.
By remaining neutral, the platform company wins independent of which partner does. And the truth is that for many categories, there won’t necessarily be one winner. Different products in a category can be the “best” solution for different segments of customers.
This also leaves the door open for disruption within the category, for a new partner to enter with a better solution than the incumbents. This evolution should be a feature of your ecosystem.
Of course, this is easy to say, but it can be hard to do. Individual partners often seek ways to get a leg up on the competition by cutting special deals with the platform company. Or the platform company seeks to get more benefits from a specific partner relationship — perhaps some quid pro quo co-marketing opportunity with that partner’s customer base.
Structure your ecosystem to enable these “special” benefits and opportunities, but award them based on objective merit. In theory, any partner should have the opportunity to achieve those benefits if they meet certain criteria — e.g., the number of apps that may be sold, the number of platform installations they can grow in conjunction with their app, brand equity that they’ve achieved in a category, etc.
Not every partner is equal. But every partner should have equal opportunity.
8. Within reason, support competitive apps in your ecosystem.
As a platform companies expand to have a larger footprint of functionality, overlap with some categories of partner apps inevitably occurs.
Most of the platform companies we talked with felt it was important to remain open to those partner apps — even if they compete with some facet of what the platform itself offers. In many cases, a partner who specializes only in one particular capability will go much deeper on it than the platform itself will. The general-purpose use case might be baked into the platform, but more specialized or vertical market use cases are often better served by partners.
This puts customers first by respecting their choices. They decide which features from the platform or partner apps they prefer, and they can mix-and-match as they see fit. After all, that’s one of the key benefits of an open platform to them: its flexibility and extensibility.
So embrace “coopetition” in your ecosystem, where companies compete in some ways and cooperate in others. Focus on the benefits to customers of how your products work together.
9. Empower the below-the-waterline mass of your developer community.
Platform ecosystems are like icebergs. Above the waterline are the apps that companies build as products to sell to other customers on that platform. These are typically the apps listed in a marketplace or partner directory.
But most platforms also enable individual customers and service providers to build custom apps for specific business needs. This development happens “below the waterline” in your ecosystem, as those apps aren’t visible to the rest of the world.
Like an iceberg, the total number of these custom apps is often much larger than the apps in public view. For instance, one company we spoke with had an ecosystem of tens of thousands of developers, with only about 20% above the waterline.
This ratio varies by company, but the point is the same: a platform company that focuses only on ISVs above the waterline is missing out on a huge opportunity with their broader developer community.
Many new long tail ISVs often bubble up from below that waterline. For instance, an agency may build an app for one client, then find another client who wants the same thing, and then another. They then realize that they might be able to package that solution into a productized app that many customers could use. Suddenly you have a new partner above the waterline adding more value to your ecosystem.
I hope these principles are as helpful to you as they were to us — whether you’re building a platform yourself or evaluating other ecosystems in which you might participate. I’m super grateful to all of the people who shared their wisdom on this topic with us. (You know who you are.)