The platforms offered by companies like Facebook, Twitter and Apple offer entrepreneurs some very compelling features. They often bring to the table built-in audiences, and, in some cases, established business models.
For reasons like these, it's no surprise that a growing number of entrepreneurs are building entire companies on top of a specific platform. And it's no surprise that investors have flocked to back them.
But are platform-specific startups all they're cracked up to be? While some have achieved wild levels of success, there's a lot to dislike about trying to building a business on top of somebody else's platform. For one, the ease with which one can usually develop on these platforms means that there's a lot of competition. That makes building a viable business a bit tougher. But even more important is the fact that being dependent on a third party's platform is an inherently risky business proposition.
It appears that investors may increasingly be less willing to turn a blind eye to the negatives of platform-specific startups. According to CB Insights, investments in 'pure-play' Twitter startups have dropped by 50% in a year's time. From June 2008 to May 2009, investors poured nearly $22m in "companies whose product or platform is predicated wholly on the Twitter platform." From June 2009 to May 2010, that amount was cut to just under $10.5m.
CB Insights notes that the decrease in investment might have something to do with the uncertainty about Twitter's changing approach vis-à-vis developers and the role they'll play in Twitter's future. It might also have something to do with the fact that building a viable business around Twitter looks a lot tougher than building a cool startup around Twitter.
Is the reduced investment in pure-play Twitter startups indicative of a broader trend affecting all platform-specific startups? Perhaps not. According to CB Insights, investments in companies focused on the iPhone and iPad rose 220% in the period June 2009 to May 2010 from the same period a year earlier. Obviously, when it comes to the bottom line, the iPhone/iPad ecosystem arguably has a much more compelling profile for investors.
But increased investment in iPhone/iPad startups over the past year doesn't mean that the reduced appetite for Twitter-focused startups should be ignored. While this may partially be the result of trends specific to the Twitter platform, there is some common wisdom in the notion that building a business that is wholly dependent on another company's platform isn't the best pathway to long-term success. Platforms come and go, and the best still evolve and devolve. Even the slower investors will eventually recognize that. And the smartest will understand this: savvy entrepreneurs think multi-platform. In other words, they know how to tap into powerful platforms, but they don't necessarily want those platforms to serve as the foundation for their entire business.