The Way Startups Die: Platform Risk
Platform risk is one of those dangers that feels obvious in hindsight, yet startups fall into it every single year. It usually doesn’t kill you at the start; it waits until you’re actually winning.
The playbook is simple: A platform—whether it’s the App Store, a browser, an OS, or a blockchain—needs to grow. But the owners of these platforms don’t actually know what the “winning” applications will be. They have the distribution, but they don’t have the crystal ball.
So, they open the gates.
The Flywheel Trap
They make the platform “developer-friendly.” They offer APIs, documentation, and a seat at the table. They want you to build there because every successful app you build adds value to their ecosystem. You are the R&D department they don’t have to pay for.
Think about the early iPhone. It had flashlight apps and quirky games. No one at Apple fully realized that music streaming or ride-sharing would eventually become the core utility of the device. They let the market figure it out.
But here’s the reality: Every platform has an owner. And every owner is a gatekeeper.
From Partner to Predator
The incentive structure changes the moment you find product-market fit. Once an application like Spotify, Pandora, or YouTube Music proves that streaming is a massive, high-margin business, the platform owner (Apple) has a distinct incentive to take that market back.
They don’t just watch you succeed; they move to compete. And when they do, you aren’t playing on a level playing field.
They control the economics: They take a 30% cut of your revenue while their own version (Apple Music) keeps 100%.
They control the real estate: They can pre-install their app or bury yours in search results.
They own the rails: They can change the rules of the game at any time.
The Cost of Being the Lab Rat
I’ve seen this happen over and over. I’ve had my own companies killed this way. On the outside, the platform owner looks like your biggest cheerleader. They want your traction to build their flywheel. But as soon as you get successful enough to matter, they will move to clone your product or build a “better” integrated version to reclaim the market.
The Lesson: When you’re thinking about your strategy, you have to look past the initial “friendliness” of a platform. You need a deep insight into the platform’s own incentives.
If your entire business model is a feature that the platform owner can eventually integrate into the OS, you aren’t building a company—you’re just doing free market research for a giant.