It is not enough to identify an unsatisfied need to build a successful business model. Any business model whose viability depends on only one critical resource is in danger of failure.
For reasons unknown, now and then appears a company in the software marketplace whose only product depends critically on a service provided by an external source, with almost no possibility of being replaced if that other company turns against you.
For example, not so long ago, people forgot that Twitter is a private company1 and thus tries to protect its own interests. The story goes as follows. Created in 2006 by Jack Dorsey, Twitter was at first embraced by geeks and other technically oriented people. This early adopters allowed Twitter to gain the critical mass needed to be an important player in the social media arena. Year 2008 was the year of Twitter’s mainstream adoption. That year Twitter registered 100 million tweets per quarter, up from 400.000 in 20072.
For a long time, Twitter didn’t have an official application for neither desktop PCs or smartphones. You had no choice but use Twitter’s webpage. Some software companies saw this as an opportunity, and a variety of twitter applications appeared: Seesmic, Twittie, Twitterrific, Tweetsville, TweetDeck… This companies earned money either by charging for the app, or by displaying adds. But in order for their applications to operate, they depended on the ability to connect (freely) to Twitter’s servers.
On April 2010, Tweetie, one of the dominant twitter clients, was acquired by Twitter, was renamed Twitter, and proclaimed by Twitter as the official application for the Mac and iPhone. On May 2011, Twitter acquired TweetDeck, another twitter client aimed at power users.
Following August 2012, Twitter begun introducing a series of changes3 regarding the use of its servers by third-party developers. Among other things, they explicitly discouraged the development of client apps. They also restricted the number of connections non-official Twitter apps could make to Twitter servers, thus limiting effectively the number of program copies this third-party developers could sell.
A similar case happened with Google Reader. Launched in October 2007 by Google as a web based feed aggregator, it rapidly grew in popularity and became the predominant feed reader in the market. Google never released an application for smartphones or desktop PCs. Users were expected to access the service using a web browser, which provided a good experience for desktop usage but a poor one in both smartphones and tablets.
Many software development companies jumped at the opportunity, and a plethora of third-party applications for smartphones and tablets appeared. This applications connected to Google Reader’s servers, and replaced Google’s web interface with a sophisticated user interface. But again, they all had one critical dependency: they relied on the leniency of Google to function. But Google will be around like forever, right?
On March 2013, Google announced that Google Reader will be shut down on July this year.
Analyze the complete Business Model
The people behind the companies mentioned above were probably talented people. In many cases they built outstanding products. But having an outstanding product is not enough. Make sure your business model is consistent4, and know its weaknesses.
- Paul Graham, Why Twitter is a Big Deal. ↩
- http://en.wikipedia.org/wiki/Twitter ↩
- cfr Changes coming to Twitter API and Changes coming in Version 1.1 of the Twitter API. ↩
- There are several tools for gaining a better understanding of your business model. (Osterwalder’s Business Model Canvas comes to mind.) ↩