What Apple Knows That Facebook Doesn’t

Too often, we don’t recognize the power of platforms – even in Silicon Valley.

The piece below by Umair Haque, draws an interesting difference between the way Apple and Facebook are both conducting their businesses. Some would argue against viewing Apple as ‘open,’ given the proprietary nature of the iPod and iTunes. Either way, it’s great food for thought.

“Today, platform wars ain’t what they used to be. On the one hand, there’s Facebook – playing a textbook game of platform strategy, but slowly suffocating the utility of its own network. On the other, there’s Apple – ignoring many of the rules of platform strategy, but radically redesigning the long-suffering mobile value chain with the iPhone App Store.

How do we make sense of this? Why do Facebook’s elaborate games of platform strategy seem to be destroying value, while Apple’s platform anti-strategy promises to explode the boundaries of value creation in an industry where those boundaries have long been held to be fixed and immutable?

Yesterday, we saw platforms as mechanisms to strategically control complements. Strategists and economists studied platform wars intensely – with Annabelle Gawer and Michael Cusumano’s excellent Platform Leadership being perhaps the reference work for strategists.

Today, I think there’s perhaps a simpler and more powerful way to think strategically about platforms.

Let me advance a simplifying proposition: platforms are markets. The most useful way to think about platforms today is simply as markets.

The App Store’s name is revealing: it tells us that Apple doesn’t see a platform to be manipulated, but a market to be made. It is that understanding that’s at the heart of Apple’s furious domination of the mediascape.

Markets – and networks, and communities, as I’ve discussed – are strategic weapons of shock and awe. Why? Here are three ways in which they radically alter the structure and dynamics of entire industries. Markets alter the basis of competition. Apple took something terminally closed – the mobile value chain -and pried it radically open. Facebook – still thinking in yesterday’s terms – took something radically open – the www – and is trying to make it a little bit more closed.

Apple took something radically evil – the mobile industry – and is making it a little bit more good: finally, now that it’s usable, there’s an incentive for you to get stuff that’s actually useful on your phone, instead of just being a zombie whose head is getting ripped off by suits scheming up hidden charges in boardrooms.

Facebook – still thinking in yesterday’s terms – took something radically good – the self-organizing incentive for people to share knowledge with others on the www – and is making it a little bit more evil: exclude people from accessing it, trying to pollute it with ads, subvert it with pseudo-friends, silo it across mini-networks, dilute it to the point where low-quality apps proliferate like weeds.
Markets cause strategic domino effects. Markets are strategically radical: once the basis of competition has been altered, an economic tsunami is unleashed, often unstoppable. The dynamics of competition shift irrevocably. In mobile, for example, Apple’s market driven approach has each player striving to be more open than the last.

Markets atomize the value chain. The App Store is radical, ultimately, because it atomizes the value chain: where once a handful of scale-driven players could produce and distribute mobile apps, today, any number of players can enter. What was once monolithic is shattered into a million pieces. If the market can coordinate those millions of pieces effectively, the new value chain is hyperefficient. The industrial era DNA of incumbents simply can’t fight that kind of radical fragmentation: it’s too slow, dull, unimaginative, and evil.

Ultimately, Apple is playing a textbook game of next-gen strategy: using markets to alter the basis of competition, topple incumbents with domino effects, and atomize the value chain. Incumbents playing by yesterday’s rules are trying to fight a limit break with a spoon.

Facebook is doing largely the opposite: clinging to yesterday’s basis of competition, signing deals with incumbents instead of toppling them, largely failing to atomize media – unless it’s for zombies, vampires, and werewolves. Too often, that’s where platform – instead of market – thinking leads.

What would it take for Facebook to stop thinking platforms, and start thinking markets? Well, simply start charging people for apps, for a start: that would amplify incentives for crappy apps to go the way of the dinosaur. If advertisers are subsidizing apps for people, Facebook’s market will always be distorted – because advertisers need consumers more than consumers need advertisers today.

The understanding that platforms are markets is one of the most vital differences between revolutionaries and laggards across today’s strategyscape. Who else knows that platforms are really markets? Google, of course. Who’s blind to it, and still plays by yesterday’s rules? Microsoft, AOL, Yahoo. But that’s just a start: the most interesting examples come from players outside tech industries altogether: Ford, the Gap, and Bear Stearns, to name just a few players trapped by platform logic.

This conclusion also helps us answer another critical question on the minds of today’s investors, entrepreneurs, and would-be revolutionaries: when will today’s crop of startups start making serious cash? The answer: when they shift from platform logic to market logic.

That’s a subject for another post (or maybe a book 🙂 – for now, let’s discuss. Is platform thinking holding players back – are there players who are still using platform thinking to great effect? Who do you think who should be thinking in terms of markets instead of platforms? Where else do you see players shifting from platform thinking to market thinking?”