Brad Burnham of Union Squared Ventures puts forth an interesting theory.  He basically lays out the idea that platform companies like Apple and Facebook are like governments…

A lot of people have begun using the term ecosystem to describe these big platforms. That captures their decentralized, emergent character, but ecosystems do not have a central point of control. Apple decided to eliminate third party analytics between one release and the next. That doesn't happen in an ecosystem. The right analogy is a government.

Facebook is a government. Facebook's users are citizens, and Facebook's applications developers are the private companies that drive much of the economy. Apple. Twitter, Myspace, Craigslist, Foursquare, Tumblr and every other large network of engaged users (including some services of Google) plays a similar role.

He then suggests we view these companies through that lense in the future…

So as you watch the large web services evolve, think about how they are balancing the relationship between the state and the private sector? What does Facebook's introduction of Facebook Credits say about its monetary policy? What is Apples foreign policy? Do they act unilaterally promoting their own proprietary standards or do they act multilaterally embracing international standards? What is Twitter's industrial policy? Do they invest in state owned services or encourage decentralized economic development? The choices these platforms make reveal a lot about who they are, and ultimately how well they serve the companies operating in their economies and the citizens who live there.

The implied point here being that companies like Facebook, Apple, et al. should be mindful of this comparison and start to act like responsible governments would and not like dictators.  I don’t agree with this. 

Mr. Burnham’s analysis certainly has some truth to it.  But in my opinion that makes it more dangerous than helpful and I want to explain why.  To do that let me make two points…

All Successful Companies are Dictators…at first.

When I was a kid there was a company named 3Dfx (or 3dfx depending on when you ask).  They had a graphics chip called Voodoo and a proprietary API for that chip called Glide

They also had the coolest logo ever….

An early version of 3dfx logo. The name was written with a capital 'D' at the time.

…but that is beside the point.

Almost every developer hated 3Dfx’s creation of Glide.  The argument was always that their time would be better spent helping along abstraction layers such as OpenGL which wouldn’t force developers to write programs specifically to 3Dfx hardware. 

Eventually that’s exactly what 3Dfx did.  They stuck with their proprietary solution as long as they could but when companies like nVidia became able to compete at the same hardware level 3Dfx abandon their proprietary API and embraced a more open solution. 

This is a cycle that plays itself out over and over again in the technology industry and it’s a successful one.  Because it allows companies to make a bunch of money by being proprietary and then to use that money to stay successful once they can’t maintain that anymore.  Microsoft is alive today because they made a bunch of money during their proprietary phase and are living off it now. 

In the case of 3dfx they had so much money that they were able to buy a video card company called STB and start manufacturing not just the chips but their own video cards.  A move that could have allowed them to dominate the entire video card industry and it’s a move they could only afford because of the money they made during their proprietary days.

(What actually ended up happening is the move distracted them from making better graphics chips which allowed nVidia to leap frog them at which point their company died)

Edit: Kindle Review has a great post on this that points out how companies are entitled to this advantage because of all the effort it takes to build a platform.  Read it here: http://ireaderreview.com/2010/06/12/do-users-own-the-company-whose-products-they-use/ 

Companies Come and Go but Governments are for ev…much longer.

The reason dictatorial governments aren’t acceptable is because the residents of a country can’t choose another government.  At least not without leaving their entire identities behind.

A dominant company can look like a government at the height of its dominance because you don’t seem to have a choice to leave it.  Everyone’s on Facebook right?  So how can a user really leave? 

But that ignores the fact that no company stays dominant for very long.  Who could be more dominant than Microsoft was in the 90s?  Yet even they could only hold on to that dominance for a little over a decade.  Less than 15 years after Windows ‘95 they’re struggling to enter new markets because they see their primary business eroding. 

Compare that to the longevity of countries where even the most backwards government (I’m looking at you North Korea) can easily survive half a century.  That longevity is what makes a dictatorial country so horrifying.   

Conclusion

As I said from the outset there is definitely some truth to Mr. Burnham’s analysis.  But insight is only helpful if it provides you with a prescription for successful future behavior.  This advice does the opposite.  It tells you to abandon a successful strategy based on a flawed analogy.  It suggests you abandon the very strategy that has worked time and time again in the business world. 

Addendum: I write this blog with one central value in mind and that value is truth.  I tell the truth as I see it and while it means I get some very nasty emails and I’ll never be as popular as Scoble that’s the line in the sand I’ve chosen to draw.  Which of course makes me look like a jerk much of the time and I accept that.

But occasionally I chicken out and this is one of those occasions.  So please pretend this paragraph was in the first point above (where I initially deleted it from)…

[Cut Paragraph Begins] 

What about the users?  

As much as I hate to say it the users don’t matter in the very limited scope of this discussion. If you’re dominant enough to be having this discussion than the users don’t really have a choice to leave you just yet. 

Moreover users don’t really care about openness.  They’ll scream about it but in the end they’ll pick the product with the best features not the open one.  Your users might think you’re a jerk but as millions of Apple fans have proven they’ll stick with you if you continue to create a great product. 

Deciding when to open up is completely dependent on your competition.  When they mature enough to start drawing away early adopters that’s when you open up.  At which point your users will accuse you of bending to competition and they’ll be right but if you still have a better product they won’t abandon you and if you open up enough they'll eventually forget you were closed in the first place (does anyone remember how proprietary Netscape was back in the day?) 

[Cut Paragraph Ends]