Retention Beats Distribution for Platform Winners

The emergence of ChatGPT as a new distribution platform presents a rare growth opportunity that follows predictable cycles seen in previous platforms like Facebook, Google, and mobile.

The Four-Step Platform Cycle

Step 0: Market Conditions Are Met

• There's consensus about a new huge category emerging (AI chat platforms)
• No clear winner yet, with 5-7 major players battling (OpenAI, Claude, Gemini, etc.)
• Fierce competition with huge capital investments

Step 1: Identifying and Building the Moat

• A player identifies what will create defensibility and help reach escape velocity
• For ChatGPT, the moat appears to be context and memory
  • "The actual difference maker is which one has more of your context"
  • "The more you use it, the more it's able to store memory around you which feeds more personalized context"
• The platform needs to press this advantage as quickly as possible

Step 2: Opening the Platform

• The platform establishes a third-party ecosystem to gather more of their moat
• They create incentives for developers and businesses to build on their platform
• The value exchange: "You develop on top of my platform, and in exchange I'll give you distribution"
• This creates a gold rush of developers and businesses joining the platform

Step 3: Closing for Control and Monetization

• Eventually, platforms begin locking down through:
  • Shutting down third-party access entirely
  • Developing first-party applications that absorb highest-value use cases
  • Artificially depressing organic distribution to push toward paid mechanisms
• By this point, the platform has built such a lead that competitors can't catch up

Why This Matters Now

• We're seeing all the conditions for a new distribution platform to emerge
• ChatGPT shows signals of preparing to launch a third-party platform
• The cycles are getting shorter and shorter - you have less time to capitalize
• This is a rare opportunity - new major distribution channels emerge infrequently

How to Play the Game

For Startups

• You must play the game - "There is no opting out"
• Place a focused bet on one platform (unlike larger companies that can spread bets)
• Choose based on:
  • Retention and depth of engagement (not just MAUs)
  • User quality and monetization potential
  • The value exchange offered
  • Scale (but not at the expense of the other factors)

For Established Companies

• You can place multiple bets across platforms
• If you don't participate, competitors will, and customer expectations will change
• "It ends up being a prisoner's dilemma"

Planning Your Exit Strategy

• As soon as you enter the game, start planning your exit strategy
• Build ways to own important parts of the user experience
• Accumulate specialized data and context the major platforms don't have
• Create micro-network effects that persist beyond the platform

Why ChatGPT Is Likely to Win

• They were first to implement memory features
• They're investing heavily in context connectors
• Their retention curves show significantly higher engagement than competitors
• They display the rare "smile curve" in retention (usage increases over time)
• They're already hiring for roles related to a third-party platform

The window of opportunity is narrow - likely the next six months - so companies need to prepare to move quickly when these platforms fully open.

Strategic Thinking for AI Adoption

• Historical winners succeed by superior retention and engagement rather than having the widest distribution at launch
• The most successful companies place constraints that force AI adoption
• Leaders must get close to the ground floor to understand actual adoption
• The system's output is constrained by its slowest part - address bottlenecks systematically