There has been an immense amount of speculation in light of Snap's IPO about the long-term viability of Snapchat's strategy. Two elements of Snap's strategy have caught the public attention: 1) Snap's statement that they are a "camera company" and 2) their intention to reinvest their revenues in the development of new products that will take significant time and expense, but which they believe they can develop faster than competitors.
How should you interpret the viability of Snap's strategy amid the many commentaries and opinions? The cacophony of opinions isn't unique to Snap, it also infects the more general view of digital and digital transformation. All around us pundits are claiming that every industry is being disrupted and all the rules have changed. But have they? A closer look at the core ideas of technology strategy suggests that beneath the sound and the fury there are a set of fundamental principles that can guide leaders to make 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. More importantly, in a 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 close 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 a digital era comes from the platforms that facilitate interaction.
To see why platforms are more valuable than products, ask yourself a simple question: would you rather be one of 2 million apps competing in the app store (i.e., products) or would you rather be the app store (i.e., a platform). You prefer 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. 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 a pre-digital era so many of the opportunities were product opportunities. In a 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 today are built on platforms.
Snap is a perfect example: the reason Snap is so valuable today is because they own a platform with over 150M subscribers. But one reason for concern is that Snap's S-1 talks about developing "products," and in terms like product companies (that they will require immense time and effort, compete through differentiation, etc). Perhaps Snap means platforms when they say products, or features that support the platform, but as a strategist in the digital era, never lose sight of platforms. Products are good, platforms are much better.
Don't Neglect the Core Interaction
When you look at most successful platforms today, like LinkedIn, Facebook, iTunes or the app stores, you see dozens of actions and features. But the real value of a platform starts and rests on just 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 was the core interaction for Myspace? It's hard to answer because it became obscured over time. Initially it was connecting to friends, but it soon became overtaken by music and users soon started to complained that whenever they logged in to Myspace they would be inundated by messages from unknown bands. The core interaction soon lost its value and Myspace fell behind Facebook, which provided a stronger core interaction.
The question about Snap's strategy should be, what is their core interaction, how sustainable is it, and how do their 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 lowers the "bar" for looking good, creating a more causal interaction. 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. Currently it is unclear how being a camera company multiplies the value of this core interaction.
Software Platforms Often Beat Hardware Architectures
One reason Snap may have declared they are a camera company is that they see the immense potential in augmented reality (AR). With the success of Pokemon Go, earned a billion in revenue in just over six months on a free AR product, the world is awake to the potential for augmented reality. The potential of AR, VR and other interactions may be one reason Snap declared they are a camera company. 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 fit together. Platforms by contrast can be hardware, but are typically software, and instead facilitate interactions. The easiest way to tell the difference is the business model. Architectures are sold like products and platforms earn money based on the cut of each interaction they facilitate. Thus the iPhone is an architecture (how the camera, chip, glass, etc. fit together) that hosts a platform (the app and iTunes store). 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 $2B on Oculus Rift virtual reality, which depends on hardware, Google has been trying to commoditize the hardware-element of virtual reality with the $10 Google Cardboard, and instead making software the platform for VR. Google is trying to do the same in AR: although they are working with hardware manufacturers today, their 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 (e.g., camera) or the software?
Turn Products into Platforms
Finally, products can end up being valuable platform opportunities. My co-author, Feng Zhu and I wrote about turning products into platforms. 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 (I wrote about hybrids as a tool to bridge discontinuities in HBR as well). 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 their current platform business model, it may make some sense. But this isn't immediately clear from the documentation.
In conclusion, how should you judge the viability of Snap's strategy? If you believe they are mistakenly placing their focus on easily imitated products, rather than platforms; losing sight on their core interaction, and building on hardware platforms that will one day be commoditized, then you might be worried about Snap. If on the other hand you think Snap's "product" language is code for defensible, value-added additions to the core platform interaction, which you believe they can deliver, and that they are building bridges to future platforms with their camera strategy, then you have cause to be optimistic about their long term viability. Regardless, Snap has accomplished a great deal to this point and is an amazing example of the opportunity available in an easily over-looked core interaction and the incredible value of the platform built upon it.
A version of this article appeared on HBR.org.