In light of Snap’s IPO, there has been an immense amount of speculation about the long-term viability of the company’s strategy. Two elements of it have caught some attention: Snap’s statement that it is a “camera company,” and its intention to reinvest its revenues in developing new products that will take significant time and expense, but which it believes it can develop faster than competitors.
How should you interpret the viability of Snap’s strategy amid the many opinions? The cacophony of commentaries isn’t unique to Snap; it also infects the general view of digital and digital transformation. The conventional wisdom holds that every industry is being disrupted and all the rules have changed. But have they? A close look at the core ideas of technology strategy suggests that beneath the sound and the fury lies a set of fundamental principles that can guide leaders in making smart choices. These same principles can help cut through some of the confusion around the viability of Snap’s strategy. I’ll share four of these principles here.
Don’t Confuse Products and Platforms
Products and platforms are fundamentally different, but easily confused. In the digital era, platforms are typically more valuable than products. This sounds simple, but most of the large companies I work with are making the mistake of focusing on products rather than platforms. A review of their strategy documents reveals that they talk about their digital transformation in terms of creating engaging digital products, not platforms. But the real value in the digital era comes from the platforms that facilitate interaction.
To see why products are more valuable than platforms, ask yourself a simple question: Would you rather be one of 2 million apps (i.e., products) competing in the App Store, or would you rather be the App Store (i.e., a platform)? You’d prefer to be the App Store, because products require immense time, capital, and resources to develop and must compete through differentiation to make a one-time sale, or at best a recurring subscription revenue stream. By contrast, platforms don’t actually sell anything (no inventory), they simply facilitate the interactions, and by so doing take a cut of hundreds, millions, even billions of transactions. Put another way, platforms are the kings and queens of the digital era, whereas products are the serfs who work the land.
Why do so many large and successful companies make this mistake? Because in the pre-digital era so many of the opportunities were product opportunities. In the digital era, as products become software and the boundaries between products become data, there are more opportunities than ever to build platforms. Of course, there will be some products that are immensely valuable, and of course they are worth pursuing. But if a platform opportunity exists, leaders should focus their efforts there. By some measures, 60 of the world’s most valuable 100 companies are built on platforms.
Snap is a perfect example. The reason the company is so valuable is it has a platform with over 150 million users. But one reason for concern is that Snap’s S-1 talks about developing “products,” and in terms commonly used by product companies (they will require immense time and effort, compete through differentiation, etc.). Perhaps Snap means “platforms” when it says “products,” or features that support the platform. But a digital strategist should know: Products are good, platforms are much better.
Don’t Neglect the Core Interaction
When you look at the most successful platforms today, such as LinkedIn, Facebook, iTunes, and the various app stores, you see dozens of actions and features. But the real value of a platform rests on one or two core interactions. The remaining features are frosting, added later, that should enhance or protect the core interaction. If added products and features obscure the core interaction or the core interaction loses its value, the platform will fail.
To illustrate, ask yourself, what is the core interaction for Myspace? It’s hard to answer because the core became obscured over time. Initially it was connecting with friends, but it soon became overtaken by music, and users started to complain that whenever they logged into Myspace they would be inundated by messages from unknown bands. The core interaction lost its value and Myspace fell behind Facebook, which provided a stronger core interaction.
The questions asked about Snap’s strategy should be: What is its core interaction, how sustainable is it, and how do its investments protect and multiply the value of that core interaction? Informal feedback suggests that Snapchat users value that the service makes it easier than competitors to keep in touch with friends, while the impermanence of the content (you can only view messages for a short window of time) lowers the bar for looking good, creating a more casual experience. This core interaction has value, as evidenced by the millions of members who have joined. But I am more interested in how Snap’s investments will protect and multiply this core value.
Software Platforms vs. Hardware Architectures
One reason Snap may have declared that it’s a camera company is that it sees the immense potential in augmented reality (AR) and virtual reality (VR). But a camera is not a platform; it is an architecture (although often mislabeled a platform). What is the difference? An architecture, typically hardware, defines how components fit together and the interfaces between them, like the architecture that defines how your iPhone, laptop, or car fits together.
Platforms, by contrast, can be hardware but are typically software, and facilitate interactions. The easiest way to tell the difference is the business model. Architectures are sold like products, while platforms earn money based on the cut of each interaction they facilitate. Thus the iPhone is an architecture (how the camera, chip, glass, and other features fit together) that hosts platforms (the App Store and iTunes). The platform could be separated from the hardware, as is the case for Android.
The problem with defining the camera as the platform of the future is that it is really a piece of hardware, and products like a Snapchat headset sound like products with architectures, not platforms. Hardware can host platforms, just as an Xbox hosts the interaction of gamers and game producers. But the challenge of building platforms resting on hardware, like a camera, is that the most savvy technology strategists are actually trying hard to commoditize hardware-based platforms in favor of software-based platforms.
For example, while Facebook spent $2 billion on Oculus Rift, which depends on hardware, Google has been trying to commoditize the hardware element of virtual reality with the $15 Google Cardboard, which makes software the platform for VR. Google is trying to do the same in AR: Although it is working with hardware manufacturers today, its vision is to commoditize the hardware platforms and win with software platforms.
As you interpret the “camera company” strategy, the question then becomes, where will the real platform be at the end of the competition? In the hardware (camera), or in the software?
Turn Products into Platforms
Finally, products can end up being valuable platform opportunities. Although platforms are the gold standard of the digital era, many companies have products, not platforms. Turning products into platforms can be one of the best strategies for creating new platforms. Doing so often requires a great product and a hybrid business model. If Snap intends to build products as a bridge to new platforms, or as an effort to create a hybrid business model more robust than its current platform business model, that may make sense. But this isn’t immediately clear from the documentation.
So, how should you judge the viability of Snap’s strategy? If you believe the company is (1) mistakenly placing its focus on easily imitated products, rather than platforms, (2) losing sight on its core interaction, and (3) building on hardware platforms that will one day be commoditized, then you might be worried about Snap. On the other hand, if you think Snap’s “product” language is code for defensible, value-added additions to the core platform interaction, which you believe it can deliver, and that it is building bridges to future platforms with its camera strategy, then you have cause to be optimistic about its long-term viability.
Either way, Snap has accomplished a great deal to this point and is an amazing example of the opportunity available in an easily overlooked core interaction and the incredible value of the platform built upon it.