HitchHiker's Guide to — Platforms and Point Solutions
Or identifying a Platform business from a Point Solution - Part 1 of 2
We were recently looking through the current performance of Public SaaS companies and stumbled upon an interesting bit of trivia.
Do you know the one word that’s present on about 90% of the landing pages of Public SaaS companies?
It’s Platform.
Incidentally, this is the question that we also have to tackle every time we meet a new company — Does this idea have the ability to become a platform?
But before that, here’s a quick intro to this series that we call:Hitchhiker’s Guide to …
It’s our attempt to capture & abstract our conversations and diligence notes around each potential investment we evaluate. Since we spend all of our time SaaS, we thought of breaking down some of the basic mental models and sectoral views we use to evaluate an industry or the interesting companies we meet.
The idea of this series is to go public with our thoughts and discuss this with the larger universe. Get critiqued and iterate.
Hope you will find this interesting. Feel free to drop any suggestions for any improvements or if this was helpful in the first place.
Okay, so back to platforms. Let’s start by defining a platform before going into why it’s important and some takeaways on identifying one.
Now we are not talking about Platform in a conventional sense of something like a PaaS1, but more so on how tightly a company is integrated across all the workflows of the user.
Examples include a Salesforce or a Clari in Sales, Postman for API management, Workday for HRMS, etc. The consistent factor in all of these platforms is that they are integrated deeply with their customers, which makes it difficult for someone else to compete with them.
To put it simply, Platformization helps you to:
Sell more features to your customers — Increase NRR2. The below infographic shows how Datadog grew with its customers over the years by adding products to its suite.
Puts you in the best position to compete against potential disruptors — Atlassian bolstering its suite of products with Confluence, IT management, Trello, etc., in addition to Jira helps it compete against competitors who might offer solutions competing with any one of its products.
Source: Atlassian: Analysis and strategic recommendation by Ryann M. Carlson (2017)
Position yourself with strength in your ecosystem — If you have chosen the right starting point/capability, everyone in your landscape wants to partner with you. Snowflake & Databricks have executed this strategy brilliantly in the Data ecosystem, where every new entrant wants to partner with them.
Source: Databricks & Snowflake
Don’t get us wrong, you don’t have to become a platform. You can own your competency and build a suite around your core use case. But if you don’t stay ahead of the curve with this, you end up at the risk of becoming a point solution or, worse, disintermediated.
💡 In the age of increased focus on NDR/NRR, platformization has become a dominant theme in capturing lifetime customer value.
The above approaches help Platforms build defensibility, the opportunity to capture a larger part of their TAM, and bring greater efficiency to sales.
What happens if you can’t create a platform opportunity?
The classic example here is Slack. Slack was one of the fastest companies to a $100M and captured one of the strongest starting points with displacing email within enterprises (a feat probably unthinkable before Slack). But it wasn’t able to create a platform around it, and Microsoft eventually built something, admittedly not of the same quality but with a much larger user base. Now the story is still playing out, and Slack is one of our most used products, but Microsoft’s Platform approach in competing with Slack puts it at a slight disadvantage.
Source: Kinsta
Now that we’ve covered what are Platforms and how can they help create sustainable advantages, we will cover the question - What are the building blocks for a platform opportunity? in our next post.
We would love to hear your thoughts on how you look at building and evaluating Platform businesses!
NRR is Net Revenue Retention, a metric that tracks growth in existing customer accounts