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Four-Step Cycle of New Distribution Platforms

by Brian Balfour on August 17, 2025

The Four-Step Cycle of New Distribution Platforms

Brian Balfour identifies a critical pattern in how new distribution platforms emerge and evolve, creating windows of opportunity for companies that recognize and capitalize on them early.

The Current Distribution Challenge

  • Building a great product is necessary but not sufficient - the real separation is between those that build really great distribution
  • The game of startups is trying to get distribution before incumbents can copy you
  • This game has gotten harder in recent years:
    • Incumbents can copy faster, shrinking the window for escape velocity
    • Organic distribution channels (SEO, social platforms) have declined
    • AI makes software development easier, increasing competition

The Four-Step Cycle of New Distribution Platforms

Step 0: Market Conditions Are Met

  • Consensus emerges about a new huge category with no clear winner yet
  • 5-7 major players battle fiercely for market dominance
  • High stakes competition as these markets typically end in monopolies or duopolies

Step 1: Identifying the Moat

  • A player identifies what will create defensibility and help them hit escape velocity
  • They need to press this advantage as fast as possible
  • They can't do it alone - they need an ecosystem to help gather more of that moat

Step 2: Opening the Platform

  • The company establishes a third-party platform with incentives
  • The value exchange: developers build on the platform, adding use cases and engagement
  • In return, developers get access to a new form of distribution for their applications

Step 3: Closing for Control and Monetization

  • Eventually, the platform begins to lock down
  • This happens through:
    • Shutting down third-party access entirely
    • Developing first-party applications to absorb the highest-value use cases
    • Artificially depressing organic distribution to push toward paid mechanisms

Historical Examples

  • Facebook: Battled Myspace and Friendster, opened platform to developers with generous distribution, then gradually restricted access and absorbed key features
  • Google: Identified data moats, incentivized web developers to optimize for their algorithms, then gradually increased ad real estate and absorbed high-value use cases
  • iOS App Store: Created distribution for mobile developers, then increased restrictions over time
  • LinkedIn: Boosted distribution for company pages and individual content creators, then restricted organic reach to push toward paid options

The Next Distribution Platform: ChatGPT

  • Brian predicts ChatGPT will emerge as the next major distribution platform
  • The moat is context and memory - models with more user context produce better outputs
  • ChatGPT shows superior retention curves compared to competitors
  • Signs point to an imminent third-party platform launch

How to Play the Game

For Late-Stage Companies

  • You can afford to place multiple bets and spread your chips
  • Wait to see who the winner is, then throw your muscle behind them
  • Risk: waiting too long and missing the opportunity

For Startups

  • You don't have the luxury to spread your chips - you must choose one platform and go all in
  • Focus your scarce resources and attention
  • Higher risk, higher reward

Criteria for Choosing a Platform

  1. Look at retention and depth of engagement rather than MAUs
  2. Consider user quality and ability to monetize
  3. Analyze the value exchange being offered
  4. Consider scale, but don't be blinded by it

Planning Your Exit

  • Immediately start thinking about how to exit the game
  • Own an important part of the user experience or workflow
  • Accumulate specialized data and context the platforms don't have
  • Create micro network effects

The Prisoner's Dilemma

  • There is no opting out of the game
  • If you don't participate, your competitors will go to the new platform
  • Customer expectations will change
  • The cycles are getting shorter, giving you less time to adapt

Timing

  • New distribution platforms typically emerge after technology shifts
  • We're a couple years into the AI technology shift
  • The next major steps will likely play out over the next six months

The key insight: This is a rare opportunity for startups to gain distribution advantage before incumbents can respond, but you must recognize the pattern, choose wisely, and prepare for the inevitable closing phase.

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