I wrote about the difference between platforms versus point solutions a while ago. I explained why I would proactively try to make Shovels a platform. Point solutions are critical parts of the technology ecosystem, but they're not where the value goes. Value accrues to the platforms and I want Shovels to be a platform.

That's all fine and good and even a bit obvious. It gets more interesting when I ask the question that I've asked myself so many times before: what if it can be both?

Why point solutions remain point solutions

Here's my argument. Yes, it's possible to be both, but it has to be done in a particular order. A company must be a platform first and then add on point solutions, not the other way around.

It is very hard for point solutions to become platforms. I'm sure it's been done but the problem with finding examples is the only folks who know this transformation occurred are the founders and maybe an early investor or two. They had to do it early, deliberately, and sustain a major change in business direction without breaking everything. This is hard. The odds of success are quite low. If that was part of the original story, it's not what they would be known for today.

It's hard for point solutions to become platforms because it requires a major shift in the company DNA. In a typical tech example, a point solution is a data service. They collect data first-hand, do a bit of manipulation, perhaps, and send the data to other companies that do more transformations and shuttle it off to a broader market. Those companies that buy data from point solutions are the platforms. They're buying from multiple point solutions, squishing the data together, and reselling it in some sort of software solution for a specific high-value customer.

This is MightySignal (my last data company which focused on narrow type of mobile data) getting acquired by Airnow (which had an ad platform and many types of mobile data). This is also SafeGraph, perhaps the largest point of interest database, selling data to Placer.ai, which helps stores choose the best retail sites.

My argument is that even though MightySignal and SafeGraph know that Airnow and Placer are in a better strategic position to capture the most value, they won't change. Being a good point solution is a good, safe place to be. You won't grow, but you can run profitably until you wear out. That's one force keeping them sitting still. The other is that by the time they recognize their poor position, they've slowed down while the platforms have sped up, making the difference too far and hard to overcome.

I remember this feeling at MightySignal. I'd look at Airnow, Data.ai, Apptopia, and think, "Man, they have so much data. We just have this little bit. Oh well, I guess we'll just keep doing what we're doing."

And that's how it went until we sold the company to one of them.

Being both a platform and a point solution

It's a lot easier to go the other way around, to build a platform and then add point solutions. I've seen it happen.

Platforms usually add point solutions by acquiring them. They don't lose their status as platforms; they expand vertically. They may determine after a couple of years of buying a dataset that there are myriad uses for it and they want more control over it. They have to decide whether to buy or build, but for platforms this is an easy answer: they buy. That's their DNA.

For example, Data.ai already had the type of data that MightySignal offered. I was curious how they got it; it seemed to come in-house because I'd never heard of another point solution selling to them. I knew them all. I learned that they bought this data for a while and then eventually acquired the entire company. Now they own the data provider, so they would never need to be a MightySignal customer and they wouldn't want to acquire us either.

Closed lost. On to the next one.

I was envious then and I'm very strategic now. I think this platform-first approach is smart and the right way to go. Have a platform mentality from the beginning. Be scrappy about how your resources are spent (both time and money) and set out early to build a broad base of data products. Buy, trade, and swap your way into a portfolio of datasets. Use those data to build products for a defined niche and make those customers very happy. Let them tell you where to expand. Get those datasets the same way you got the first ones. Keep going.

At some point you'll have enough power and influence to acquire entire companies instead of just buying their data. You do this in order to have strategic control because at this point you have that option and the stakes are a lot higher.

The value-maximizing option

Platforms capture the most value and are the most resilient to market changes. They're a portfolio of assets (like datasets, software products, or brands) and by having a portfolio approach, they get to "feel" out different market opportunities. When a great one comes along, they have the option to double-down on it, go deep into that niche, and mine all the value. This is the point-solution emerging from the platform.

In my field, data products, the point-solution manifests in two ways: below the data and above the data. Below the data is the extraction process. Above the data is the software.

Today, Shovels is investing in software. We don't need to buy someone else's software products; software is cheap. We're investing in the point solution of having visibility into building permits and contractors in specific markets. Eventually, through software, we can explore other point solutions too.

There's a possibility Shovels could also expand below the data. I'm open to it, and we will definitely do it if we need to expand into an area where there are no data vendors. For now, I'm relieved that we were able to build a good business in a market where we can acquire the data rather than extract it ourselves.

It has made all the difference.