During its WWDC keynote this year, Apple took on the world: Dropbox, Box, OneDrive and Google Drive for cloud storage; WhatsApp, Snapchat and BBM for messaging; Skype and your cell phone for calls; Google for search; and so on. Hell, Apple even took on Objective-C.
Surprising? Not really. The competitive surface area that major technology companies share is inexorably rising. A key distinction, however, divides the warring companies into two classes: broad platform companies and everyone else
Platform Power
Companies that have a platform are different from platform companies. The former tend to offer a platform in a specific product sense, while the latter are broader and tend to build hardware, operating systems and software on top of their stacks.
Vertical integration, if you will.
Companies that are broad enough to warrant the “platform company” moniker are a narrow set, with only four making my cut: Apple, Amazon, Microsoft and Google. These companies are warring across a hundred fronts, which makes for an interesting market moment.
To better define what makes a platform company, we can look at the large tech companies through the perspective of white space, or the area on top of a platform that a company allows others to use. Platform companies spend more time defining the white space they offer than worrying about the white space offered by others. Non-platform companies, using our definition, think in the opposite fashion.
I spoke to Box CEO Aaron Levie about platforms, and he said that the amount of white space offered by large providers varies. For example, he thinks Apple does a good job providing developers with room to maneuver.
There is a natural feedback loop with offered white space, according to Levie; if developers feel poorly treated, they can elect to build for other platforms that offer a better value mix. This gives rise to the chance of new platforms, and thus new broad platform companies, to take root.
That goes both ways: Incumbent platform companies are massively incentivized to cater to, and pamper, developers. You can see this in action now that we are in the midst of developer conference season, which is when the platform giants take turns pitching to developers. And the growing players, such as Box and Dropbox, that want to be tomorrow’s platform companies are emulating the majors.
Platform Push
Apple’s aggressive product expansion is hardly shocking. Along with the other platform companies, it is building a wider and more diverse set of offerings: If a product, program or service can run on Apple’s platform, it wants to build it in-house.
You can see this plainly in the case of cloud storage. Google, Amazon, Microsoft and, now, Apple all offer consumer-facing cloud storage, for example. They can bake it into their web products (Google) or their operating system and productivity apps (Microsoft) or use it to drive their device experience (Apple).
Dropbox and Box, which compete in that product vertical, are differentiating themselves by building more tailored services — with certifications and market category-specific offerings — than what the platform companies offer.
The Everywhere War
This isn’t a single use-case scenario: Platform companies are silly things. Google, Microsoft, Apple and Amazon are all hardware companies, and operating system companies, and cloud computing companies, and smartphone app developer support companies, and enterprise-facing SaaS firms to an extent.
Amazon is a book-selling company. But so is Apple with iBooks, and Microsoft through its investment in Nook, and Google through the Books app on Android. Amazon sells music. As does Apple with iTunes, Microsoft with Xbox Music, and Google through Google Play Music.
Where these firms don’t compete is almost more interesting: Apple, Google and Microsoft do maps, sure, but only two do search. But even that’s not altogether true anymore, you could argue: Siri is expanding, and universal search in OS X Yosemite makes it at least searchy. To combat Siri, Google has Google Now and Microsoft built Cortana. And, Amazon, Apple, Google and Microsoft each sport their own application marketplaces. The list goes on, and on, and on.
As Facebook leads in a trend to simplify user experiences and offer standalone apps, there is a larger trend for mega technology companies to do everything.
What the hell?
A fine question. When you control a platform and a diverse customer base, you can do more. It becomes, rather quickly, a scenario in which every platform company must do all the things. And when they struggle — Xbox Music’s early design, iCloud’s general crapitude, Google’s Glass blowback — it stands out.
When you don’t compete on all fronts, you relinquish part of your end-user experience to a competitor, and you cede buy-in for your other services. And as services are increasingly tied together, a crack in your platform armor could lead a user to feel the gravitational tug of a rival platform.
If Microsoft hadn’t built OneDrive and then baked it into Windows and Office, it would leave file storage to other players — say, Dropbox or Box. Those companies would then control where files are stored, and where files are stored is where they tend to like to be edited. And lo, Office revenues take a hit.
The Glory Of Incumbency
Challenging the platform companies is difficult, because they have essentially every advantage: endless cash, massive profits and consumer brand buy-in that new competitors can almost never match — not to mention a platform they can leverage to boost adoption of their own services.
Their ascendancy in the Everything Space is why the occasional disrupter to The Established Order is so radically valuable: Facebook, a platform company of a separate sort, bought WhatsApp not only to protect its extant customer base, but also to prevent an incursion into its space by the Big Four — Apple, Google, Amazon, Microsoft.
So if there is a breakout player then damn the cost to buy it, because you have the money as a platform company and are acquiring the “Single Serving Size Of New” that your platform opponents can no longer purchase. You now own The One.
When you have your own platform, the incentive to build instead of buy goes up.
Related market dynamics are among the reasons why the price for cloud storage is declining. The giants see a breakout player and they can either choose to buy it or kill it. And since Dropbox was likely not too interested in selling (by the time platform companies were probably afraid of it), Microsoft, Apple, Amazon and Google built their own products to compete and then began giddily slashing their prices.
Stampeding Herd Of Giants
In the past, a company would shit its pants when Microsoft entered its industry. Microsoft was The Platform Company. Now what was once just Microsoft is a hydra-head of titans, and each has an advantage that almost can’t be matched: Google has insane device volume through Android; Apple has the world’s best eye for design and a brand built of diamond titanium; and Microsoft has an enterprise sales channel and corporate buy-in that is incredibly deep.
This means that breakout players will have to fight against not just clones, but deep-pocketed clones that come pre-installed on the largest platforms. Good luck!
What’s Yours Is Mine And Yours And Mine
The final piece here is the pure joy derived from watching the giants steal from each other. Apple’s OS X Yosemite is a great-looking operating system. But in several features — translucence, side widget bar, universal search — there are echoes of Windows Vista, 7 and 8.
All of this has happened before and will happen again.
Will the current platform situation slow innovation? I doubt it. Every wave of technology has seen incumbent players, and their marginal win rate tends to fall to zero if you look out a few decades.
It appears that instead of companies building nations, they are now building empires in which they control not just the rules, but also run the stores and control the currency across a huge number of fiefs (products). These resulting empires will prove more durable. The fusion of hardware companies, software companies, enterprise-facing companies and consumer-facing companies is a virulently profitable mix.
So, who’s next?
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