When a startup builds atop a distribution platform, the company prioritizes immediate growth over control. Distribution platforms like Facebook and iOS offer access to hundreds of millions of users inexpensively.
The alternative, building a customer acquisition channel from scratch, is a resource heavy effort requiring marketing teams, ad spend, PR, etc. Most companies don’t have the capital to invest in building these assets at inception.
So, many startups including ones in our portfolio like Branchout, Gogobot and Machinima, have opted for growth and have built large user bases on top of platforms. User growth is a prerequisite for raising money which can be used to build customer acquisition channels.
As these companies grow, they must regain control over distribution, complementing Facebook’s user funnel with other funnels to ultimately reduce Facebook’s contribution to new users to a minority. Otherwise, the company is wholly dependent on Facebook for growth. Kabam has made this transition very successfully.
On the other hand, Zynga built a system of customer acquisition exclusively on Facebook. And though they tried to diversify with a standalone website, the effort wasn’t successful.
One might argue Zynga waited too long to diversify. Part of the challenge, I imagine, is short-term revenue maximization. At the beginning, each dollar invested into a standalone site returns less than a dollar invested in additional Facebook growth. Ultimately, a user on a standalone site is much more profitable because Facebook doesn’t tax revenue at 30%.
As a result, Zynga doesn’t have direct access to the vast majority of its user base. They must pass through Facebook to reach their user base and must abide by rules that Facebook sets and change their communication methods as Facebook’s products evolve.
Choosing when to diversify customer acquisition channels is tricky and will vary for every business. But by and large, the earlier, the better. For every company, it’s critical to maintain control of distribution channels.