Every now and then, the truth leaks out

Good article from Matt Asay in The Register today.

While there are some stand-out success stories in Silicon Valley, there is also a raft of startups pushing product features masquerading as companies. Some of these will be acquired by the likes of Zynga and Amazon, and some will go public. But most won’t. In fact, building in the shadow of the giants in the hopes of getting acquired, or of beating them, is a losing strategy for the vast majority of companies.

This is about as truthful as it gets. There are many tiny startups, pulling in various fractions of $1M to more than $10M to develop … product features.

Is this really the right approach for VCs?

And this opens up some interesting new questions on startups and their product offerings themselves. Take Netflix. Running on Amazon S3. And what does Amazon do? Decide they want that market and go after it. To wit

It’s the same in every corner of the tech industry. Take Cloudability, which makes a great cost-monitoring service for Amazon Web Services and a host of other SaaS and PaaS offerings. Amazon recently added billing alerts to the services it offers as part of Amazon Web Services, which directly undermines Cloudability’s monitoring service.

Cloudability’s chief executive Mat Ellis was quick to suggest that Amazon’s service is inferior to Cloudability’s and that while “it may have some features that are useful to your individual needs… it?s much simpler managing your budgets with Cloudability”.

Perhaps. But surely this is just the first step for Amazon, with more Cloudability-style proactive alerts likely coming in the not-too-distant future. Amazon has shown a remarkable propensity to add new functionality to AWS at exceptionally low pricing, making it difficult to partner with the Seattle company. One day you’re an indispensable value-adding, complementary feature for Amazon and the next day you’re a superfluous add-on that must compete with Amazon on its own turf.

Its not just the product feature companies, its the product companies. Create Xaas, where X is something you can make a go of. In netflix case, its movie streaming (and DVD rentals, but physically shipping atoms is way more expensive than physically shipping bits, and I expect this to eventually fall by the wayside). Take all the risk, develop the model, prove the X as a service is viable. Then your platform provider may start competing with you.

So not only are the service providers providing service, they sometimes even take your great idea, put their own spin on it, and directly compete with you, while you offer your service off their platforms.

But the point is that Matt makes … Cloudability provides a feature, that is something that Amazon wants, and they will develop.

Netflix provides X as a service, and Amazon sees it, and is competing with it. FWIW: we have both Netflix and Amazon Prime accounts. They aren’t quite competitive, can’t watch Amazon on iPad, can’t watch Netflix on Linux.

Netflix is providing X as a service. Its a feature for a large cheap platform company. And this also shows how hard it is to move between platform companies. Talk about vendor lock in. Could Netflix start working with a different (non-Amazon) provider, to gain any sort of competitive advantage? I don’t see Amazon buying Netflix unless they score some huge content contracts that are easier to buy than to negotiate them.

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