How Platform Strength Has Made the Audience More Important Than the Product

The iPod, iPhone, laptop and tablet have often been sited as evidence of the popular notion that 'if you build it, they will come.'

But the reality is that without customers there is no business. Platforms have supplanted products because they are better situated economically as well as technologically to produce profits from audiences (read: markets) at scale.

Those fundamentals are what is driving commerce and the societies it serves. JL

Chris Haroun comments in Inc.:

Venture capitalists won't invest in a company if the potential total addressable markets isn't at least $20bn. The rationale is that most startups fail within 4 years. As a result, if a venture backed investment is to  be successful, it really should be in a company that operates in a massive market.
Companies that own the roads and then charge the cars are superb investments. The road is a euphemism for the underlying platform that a company owns and the cars are your customers.
The best investments and companies to start are the ones that own a platform, have superb management teams and also have enormous total addressable markets; don't ever start a company that has a small total addressable market because in the highly unlikely event that you capture 95% of this market, you won't be putting a dent in the universe.
Examples of companies that have been successful in owning the roads or platforms with an enormous total addressable markets include the following:

1. Uber is a taxi platform business model. 
2. Airbnb is a hotel platform business model.
3. Apple is an operating system platform business model.
4. Google's Android is also an operating system platform business model.
5. Microsoft Windows is also an operating systems platform business model.
6. eBay is an auction platform business model.
7. Facebook is a social media platform business model.
8. LinkedIn is a human resources platform business model.
9. Nintendo owns video game platform business model.
10. Sony's Playstation is a video game platform business model.
11. Microsoft's xBox is video game platform business model.
12. Audible is an audio book platform business model.
13. Twitter is a media platform business model.
14. Expedia is a travel platform business model.
15. Udemy is an education platform business model.
16. YouTube is a media platform business model.
17. Lyft is a taxi platform business model.
18. Salesforce is a customer relationship management platform business model.
19. Amazon's Kindle is a publishing platform business model. 
20. Alibaba is a global trading platform business model. 

Platforms are shaping the way we live. Some of the best technology investments have been platform solutions, including Microsoft Windows, eBay, LinkedIn, YouTube and Facebook. Per the list above, there are many others, but these companies elegantly illustrate the power of having a technology that can scale.

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Platforms need users, and a dominant platform also needs ease-of-use and to be something that others can step on as well. Think of YouTube as a plank that fit into the Google platform, which is why that acquisition made so much sense.
Based on my experience as a venture capitalist, many venture capitalists won't invest in a company if the potential total addressable markets isn't at least $20bn. The rationale is that most startups fail within 4 years. As a result, if a venture backed investment is to  be successful, it really should be in a company that operates in a massive market. If a venture backed company gets 5% of a $20bn market, then this equals $1bn in annual revenue.
How can we find out the total addressable market of a given market? If you search the Internet for the market you are considering launching a company in and the total addressable market, when you should be able to find the size of the market. However, if you can't find the size of the total addressable market, then add up the annual revenue of the top 25 companies in that particular market for a proxy or estimate of the size of the total addressable market.
It's critical to estimate how much of the market any company can gain. There are a variety of ways to do this, such as evaluating the competitive landscape or a more encompassing view is to estimate the market size that could be served with a specific product or service. No matter how you look at it, the best investments are in companies that have huge market potential.
Of course the total addressable market and the nature of the platform business model is irrelevant if you don't have the right management team in place as ideas are commodities, but execution is not. Part of the excitement of starting or investing in platform companies comes from evaluating a market and envisioning the disruption that will occur when something revolutionary is unleashed.
The best investments are the ones where the company owns the roads and the users or customers are like tollbooths or autos. Let the users do the hard work of building out the platform. Platforms are often the most successful companies entrepreneurs can start; own the road and let your customers drive your growth.