Late Stage Companies Spread Bets, Startups Must Choose One Platform

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

The Four-Step Platform Cycle

Step 0: Market Conditions Are Met

• Consensus exists about a new huge category (AI chat platforms)
• No clear winner yet, with 5-7 major players battling for dominance
• Fierce competition as stakes are high (markets typically end in monopolies or duopolies)

Step 1: Identifying and Building the Moat

• A platform identifies what will create defensibility and help them hit escape velocity
• They need to press this advantage as quickly as possible
• To gather the moat faster, they establish a third-party platform with incentives
• The value exchange: developers add use cases and engagement in exchange for distribution

Step 2: Platform Opening

• The platform opens up to third-party developers and content creators
• They offer generous distribution opportunities to attract developers
• This creates a gold rush period where early adopters can grow extremely quickly
• The platform benefits from increased engagement and use cases

Step 3: Platform Closing

• Eventually, platforms lock down and restrict the original value exchange
• This happens through:
  • Shutting down third-party access entirely
  • Developing first-party applications that absorb highest-value use cases
  • Suppressing organic distribution to push toward paid mechanisms
  • Increasing monetization requirements (revenue sharing, fees, etc.)

Why ChatGPT Will Likely Be the Next Major Distribution Platform

• The moat is context and memory - models with more user context produce better outputs
• ChatGPT has the best retention curves among AI platforms, showing the "smile curve" that indicates network effects
• They're hiring for roles related to a third-party "agent platform"
• They're establishing preferred partnerships with major companies (like HubSpot)
• They have approximately 10x more monthly active users than competitors

How to Play the Platform Game

For Late-Stage Companies

• Can afford to place multiple bets across platforms
• Should spread resources to see which platform emerges as the winner
• Need to be careful not to wait too long to commit resources

For Startups

• Must choose one platform and go all-in
• Have scarce resources and attention from the market
• Higher risk but higher potential reward

Evaluation Criteria for Platform Selection

1. Look at retention and depth of engagement rather than just MAUs
2. Consider user quality and monetization potential
3. Analyze the value exchange being offered
4. Consider scale, but don't be fooled by vanity metrics

Exit Strategy Planning

• Immediately after entering, start planning your exit strategy
• Own an important part of the user experience or workflow
• Accumulate specialized data/context the platforms don't have
• Create micro network effects

The Prisoner's Dilemma

• Many companies initially resist joining new platforms
• But there is no opting out of the game - if you don't participate, competitors will
• Customer expectations change as platforms evolve
• Better to be early than late, especially for startups

Timing

• The cycles are getting shorter with each new platform
• The window of opportunity will likely emerge in the next six months
• ChatGPT is showing signals of launching a third-party platform soon
• Companies should prepare to pivot quickly when the opportunity emerges