03/10/11

Don't compete with your own Ecosystem

Most organizations build products. Only some build platforms. Even fewer turn their platform into an ecosystem. The ones who are successful in doing so are the ones who create thriving spaces for innovation and (economic) opportunity. And sometimes you see those organizations starting to compete with their own ecosystem. Which turns out to be a bad idea. Always.

Let me tell you a story

imageWhen I was at eBay (back in the day) we decided to open up our API to allow outside developers access to the eBay system. We wrote documentation, we went on road tours to show the world what is possible with our API, we worked with and helped developers to build their ideas on top of the API. Within months we created a thriving, growing, innovative ecosystem of individual developers & companies who created tools which fulfilled a huge need - tools to allow larger eBay sellers stay on top of their sales, inventory, accounting and their customer relationships. Within a short two years this ecosystem grew so fast that a significant amount of eBay items were listed using these 3rd party tools. Then eBay decided to compete. eBay built their own tools - albeit not very good ones, but eBay had the advantage of controlling the access to the customer (which happens to be the same customer our API partners sold their products to - eBay sellers). After a while eBay decided to lower the price of their tools to essentially zero - because they could (eBay made their money by the listing fees, not from selling tools). What happened then was that the market for lower-end seller tools dried up - nobody could effectively compete with eBay. eBay could push their products to their customers - both from a marketing as well as pricing perspective. The result was that innovation in this space effectively disappeared - the tool vendors either went upmarket (i.e. they produced tools which had more functionality and were more expensive) or simply disappeared. eBay sellers were either forced to live with the rather mediocre eBay tools (which they got for free - hooray!) or had to spend significantly more to use the high-end tools. All in all pretty much nobody won.

The moral of the tale

I don't know a single case where competing with your own ecosystem proved to be a good idea. Not unless you didn't have much of an ecosystem to begin with. Sometimes organizations think they have an ecosystem - but really, what they have is a platform which nobody cares about. Then it might be a good idea to build your own products on top of this. But only then.

And why does this matter?

Simply because I see this happen again and again: Twitter buying and building their own Twitter clients and giving them away for free. Android building an open system with an open market; theoretically allowing anyone to build their own store, but effectively locking people into their own store as it is preinstalled on every Android phone being sold. The list goes on. So - if you find yourself ever in the situation that you have a successful platform which spawned an ecosystem: Don't kill it by feeling the urge to play in your own ecosystem. You are the platform. Not the player. P.S. Point in case: Twitter tells developers - Stop making Twitter clients [added on March 11th]