How Twitter won the platform gamble

Just as Captain Renault was “shocked, shocked” to find out that gambling was going on in Casablanca, I’m shocked, shocked to learn that Twitter is planning to take business away from its third-party developers. The Twitter platform was always about enriching Twitter and its investors. Why else bother?

So much, as Twitter CEO Evan Williams said of his company, for being a “force for good.” Last week, Twitter investor Fred Wilson speculated that Twitter would edge out third-party developers whose add-ons for the microblogging service merely filled feature holes that the company ought to have built itself. Then Twitter, which previously hadn’t developed its own mobile apps, bought Tweetie, a popular Twitter service for the iPhone, and released its own BlackBerry app.

I’m shocked, shocked that all of these announcements came right before Twitter’s big developer conference, Chirp, which opens in San Francisco Wednesday. Why? Pour encourager les autres, as Voltaire, another perennial optimist, said.

This is how building a platform for developers is much like running a casino. Some people may make money along the way, through luck or by accident. But the house always wins. And if you’re too successful, you get your chips cashed and you get walked out of the building.

People love to talk about the importance of being “open” — a key characteristic of a modern platform. Open, that is, to other people doing the work, like Tom Sawyer and his fence.

The real reason to build a platform is to boost your company’s valuation. An open application programming interface lets third-party developers donate their labor and ideas to the cause of enriching your investors. And through their creativity, investors get inspired about the potential to make money.

Want an example of this? Look no further than Facebook, which launched its developer platform in the summer of 2007 and was promptly hailed as the next big thing in computing. A few months later, Microsoft was hornswoggled into investing $240 million at a $15 billion valuation, which was far ahead of the company’s worth at the time. Microsoft, which has made so much money running its own platform for developers, would never have invested in a mere social network. But a next-generation computing platform? Sign them up!

True, some startups did make money in Facebook’s casino, like Slide and Zynga. But Facebook has done everything it can to take away the viral features that made those companies successful. Zynga’s $5 billion valuation, grown on the back of Facebook? Someone must have been counting cards. This way to the exit, gentlemen!

Twitter, by contrast, has done better in limiting its gamblers’ earnings. Come to think of it, has anyone built a large, meaningful business on Twitter? Plenty of Twitter developers have generated lots of noise and attention, and garnered some investment — often from the same venture capitalists who backed Twitter. But the best scenario they can hope for is a buyout by Twitter itself, as happened with Summize, a search engine, and Tweetie, the maker of a Twitter iPhone app.

That’s sort of like going from a high roller to a blackjack dealer. It’s hardly how entrepreneurs like to view themselves. But if you walk into a casino, you should be prepared to be taken.

Maybe next time, you’ll figure out that the real way to make money is to build your own.