What to build: a Network/Ecosystem or a Platform?

I’ve been thinking for a long time which is more powerful: having a cyclical network behind your product versus creating a platform for other companies to develop on top of.

Well it turns out they are both incredibly powerful and necessary for a successful product – but you always need to build a powerful, cyclical network first and then-and only then-should you spend effort building a platform.

Let me quickly explain the difference. A cyclical network is the virtuous circle of a strong ecosystem where new users are almost forced to use the product because everyone else is, and for the same reason existing users are kept from switching. On the other hand a platform is the ability for 3rd party businesses to adapt and expand the functionality of the product to specialized uses that they would otherwise not build themselves, or build as well.

There are strong examples of both cases being executed independently. Apple has created this with the iPod and iTunes. The more iPods that sell, the more record and video businesses will sign with iTunes, which again drives more iPod sales. This in turn drives more production of quality iPod accessories, which also keeps ipod’s at the top when people decide what music player to buy.

Google did the same with their ad network. More advertisers meant more publishers, and around the cycle goes. Then ad agencies start providing tuned creatives for google so more advertisers join. Blog companies offer google ads on their sites meaning more publishers.

The pure platform example is a bit harder for me because of the space I’m in, but sap comes to mind. There is just no way they would ever build the products their customers have built on sap, but it has been extremely powerful for their company.

What this Means for Us

So what does this mean for the entrepreneur? You need to build both: the network keeps driving the core business and protects your lead. Having a platform keeps niche competitors from sneaking up behind you. And they both drive each other . If you have a strong network and a good platform, people will keep joining and developing for you.

Take Google’s ad network: it has an incredible ecosystem of advertisers, publishers, and ad agencies. However their contextual targeting engine doesn’t work for every scenario, particularly in social networks. Imagine what would happen if they created a platform for companies who can target ads to their users better than them - not many other companies want to spend the effort to create an entire ecosystem of advertisers themselves. You might see places like Facebook and LinkedIn using Google Ads, building an even stronger ecosystem for Google. Instead, what you have now is places like Facebook building their own ad platforms AND building their own network and ecosystems - and they might become a big competitor to Google.

What IS important is the order that you build them in. In fact, it’s almost impossible to get people to develop on the platform you’ve built unless you’ve built a network first. Developers and 3rd parties always have too much to do, like anyone else. They’re only going to pick and choose less risky, easy, and high growth opportunities. And they find those projects on platforms that are backed by an incredibly strong ecosystem. That’s a prime reason that the Facebook platform is so popular: the real prospect of quickly distributing an application that they make to millions of users. If your platform can be perceived as risky, difficult, with limited opportunities for usage, developers won’t want your platform.

So build your network and ecosystem! Then build a platform to prevent real competition.