Offline Advantages
Almost anything you have online can be easily copied, almost any code and feature can be copied. This can be done by the big guys or by some well fincanced startup throwing money (and indian programmers) at the problem, and it can also be done by a couple of overachieving Computer Science majors at Standford (it has been done before). So a bigger moat is needed to protect what you got and to set you apart from all your competitors. These offline advantage can be patents and trademarks (if you have the money to protect them), hardware (Googles gigantic server farms and network for example), fame (Guy Kawasaki and Truemors is a perfect example) and contracts (signed contracts with partners, suppliers or customers that brings you some unique advantage). All these things are hard to copy and will get you an advantage both when it comes to protect your position and beat your competition. It is also really going to help when it comes to the valuation of your company.

Advantages of Scale
This works great for Google, MySpace and Wal-Mart, so why not for you? It is not a given for a startup to reach the point where they are big enough to take advantage of their size, but it is a must create a web venture that is successfull in the long run. Advantage of scale comes in many forms and in many diverse areas. If you set up your own server infrastructure (instead of going for Amazon EC2) you will get better deals from the hardware suppliers the more you buy. If you have a large number of users you will get more usefull behaviour data you can use to improve your services, and you will also be able to sell more advertising. The bigger and more poupular your site is the more free PR you are going to get, etc etc. Again, this is hard to copy.

Speed of Development
As stated above all code can be copied, all features can be copied and all designs can be copied (as AOL did with Yahoo’s design). But only things that already exists and are released can be copied easily. To copy your plans and your future roadmap is not as trivial. Therefore it is critical for a web startup to be able to move quickly and constanstly improve, add new feature and services. Everything you develop is just one step of the overall masterplan for world domination. That way you can leave the copycats behind and stay #1. This means that you constantly need to think 3 steps ahead and know what will be your next step. This also will save you from the worst panic when the competition releases some new hyped feature.

Why isn’t Data or a cool name a must-have?
I haven’t mentioned Data as one of the must-haves. One reason for this is that a lot of the advantages of data are part of the “Advantage of Scale”, ie the more good data you have the better. Another reason is that data in most cases can be copied (if it is in HTML format is can definitly be copied), unless it is protected by contracts (ie an Offline Advantage). Another thing I haven’t included in the must-haves is the cool name factor, something that seems so important in the Web 2.0 world. A cool name is great, a cool name is good, a cool name that you can also buy the .com domain for is even better – but it is not absolutely critical. Anyway, there are many good posts/articles/books about that subject. But a cool name alone does not equal success.

The Web is full of Ecosystems

There are already plenty of Ecosystems out there. Amazon was one of the first companies that understood the power of this, and created an open API that developers all over the world now are using (and thereby increasing the sales of books for Amazon, plus the brand recognition of course). YouTube’s success is largly due to the ease of including and showing videos on your own sites and blogs (the real success was of course that Google pay a ridiculous amount of dollars for them, but that is a completely different story). Flickr is doing the same for photos online. WordPress is an OK blog engine, but it would be nothing without all the plugins, so that is another successful Ecosystem. In the Enterprise world there is of course Salesforce that now has more requests coming in via their API than via their web page.

There are also successful such Ecosystems that are not based on web applications. Firefox (OK, that one is almost web based, just humor me please) is a great browser, but without all the add-ons it is not that usefull (me love Firebug!). Apple has been very successful in creating an Ecosystem around the iPod, just think of how many companies make great money by just producing skins and other extensions to the iPod.

The Platform Wins

What is in it for the Platform is pretty evident: more loyal users that have more reason to keep coming back. This is hard to create, and if System Providers build apps on your Platform then basically you are expanding your development deparment and you have more brilliant minds trying to figure out the killer app for your users. Also this is a great way to keep the competition at bay. Now when Facebook is becoming a Platform and not just a site it will either force the main competition MySpace to do the same or be left behind.

The System Providers Win

The System Providers that write applications that run on the Platform (most likely called something fancy like widget, gadget, addon, plugin or extension) gets access to a whole lot of ready made functionality and a huge existing user base. There is no longer any need to implement photo album funcitonality for your web app, just use Flickr. No need to build video capabilities, just use YouTube. If you build an app for Salesforce you can sell it on their AppExchange and make some money. So in short you get both functionality and a userbase, that is a pretty good deal.

The Users Win

The users can stay on one platform and take full advantage of that the platform continously gets more and more functionality added. Since each of the System Providers do not have to implement the most basic functionality (user handling, file uploading, photo album etc) they can concentrate on new great features, which of course benefits the end users. So more cooler useful features, that makes uses happy.

Win Win Win and Lose

The winners are the Platform providers that are in the center of the Ecosystem, the System Providers that gets features and a user base for free and the users that get more features quicker. That is a pretty impressive Win-Win-Win scenario.

The losers are the companies that do not understand that Ecosystems are the new type of light weight business partnerships. Either you try to be a Platform or you take advantage of whatever the Platforms around you offers. To build a new big web application and not provide an API is simply failing to take use of a huge opportunity. To build any web site and not take advantage of one or more existing Ecosystems is to do more work than you need to. It seems like Facebook really has realized that (that is no good reason to say no to the $1 billion that Yahoo is rumoured to have offered, saying no to $1 billion is always a bad move in my humble opinion).