Tools vs Platforms #

There’s some advice floating around on LinkedIn: “Build platforms, not tools”. I’ve been curious about what that means in the context of projects that I’m working on (Kendo, for example) - and whether the delineation between a tool and a platform is important in the early stages of building something. I decided to track down the “dictionary” definitions of each of these terms, and apply them to various products that I use.

Let's analyze a few examples to understand the difference:

Terraform

As a tool: Allows infrastructure to be defined as code and provisioned consistently
As a platform: Creates an ecosystem where providers (AWS, GCP, Azure) connect with users through a common interface, with Hashicorp as the intermediary

dbt

As a tool: Transforms data in warehouses using SQL-based models
As a platform: Connects data analysts/engineers with data warehouse providers and BI tools, with an ecosystem of packages and adapters

Stripe

As a tool: Processes payments for businesses
As a platform: Connects merchants, customers, and financial institutions while enabling developers to build on top via APIs

OK, so what’s a platform? #

This is the best definition of a platform that I found:

Platforms as systems connecting two or more groups together in ways benefiting both sides.

The examples provided by the author:

Shopping malls - a retail platform. Connects shoppers to retailers. For shoppers, the value is in being able to “park their cars and get their shopping done in one afternoon”. Retailers don’t have to worry about setting up parking spots, clean bathrooms, etc.

iOS and the iPhone - developer platform. For developers, writing iOS apps means distribution on the App Store, where Apple (mostly) does the job of driving customers to the App Store. For Apple, the more apps there are for the iPhone, the more the value customers get out of the iPhone. A compounding loop.

The key characteristics that distinguish platforms:

Multi-sided network effects: Value increases as more participants from different sides join (e.g., more developers attract more users, which attracts more developers)
Ecosystem creation: Platforms enable others to build on top of them, creating an ecosystem larger than what the platform owner could build alone
Standards and governance: Platforms establish rules, standards and protocols that facilitate interaction between participants
Value exchange: They facilitate value exchange between different groups (e.g., app developers and users, merchants and customers)
Reduced friction: They remove barriers to interaction between groups that would otherwise find it difficult to connect at scale

What are tools? #

Tools, by contrast, are primarily designed to solve specific problems for a single user or organization:

Single-purpose: Tools typically address a specific need or solve a particular problem
Limited extensibility: While they may have APIs or plugins, tools aren’t primarily designed for others to build upon
Direct value proposition: The value of a tool is in what it directly enables the user to do
Linear growth model: Tools typically grow by adding features or acquiring more users, but don’t necessarily benefit from network effects
Operational focus: Tools help users execute tasks more efficiently, rather than creating new value through connections

Examples include text editors, analytics dashboards, or productivity apps that deliver value directly to their users without requiring a network of different participants.

Business Value #

From a business perspective, the distinction between tools and platforms has profound implications:

Tools:

Typically have more straightforward revenue models (subscriptions, licenses)
Usually easier to build initially and bring to market
Growth is often linear, requiring continuous customer acquisition
Value is capped by the direct utility they provide
Defensibility comes primarily from feature set and user experience

Platforms:

Often have more complex revenue models (take rates, subscription tiers, etc.)
Harder to build initially due to the “chicken and egg” problem of attracting multiple sides
Growth can become exponential once network effects kick in
Value can far exceed the platform’s direct contributions due to the ecosystem
Defensibility comes from network effects and switching costs

This is why investors typically value platform businesses more highly - they have the potential for exponential rather than linear growth, and their defensibility increases as they scale.

However, many successful platforms started as tools first. Slack began as an internal tool for a game company. GitHub started as a simpler way to use Git. This “tools-first” approach can be a practical way to establish value before attempting to create a multisided platform.

When to Build What #

So should you build a tool or a platform? The answer depends on your stage and context:

Start with a tool if:
- You’re solving a clear, immediate problem
- You need to validate product-market fit quickly
- You have limited resources
- You want to establish value before attempting network effects
Evolve toward a platform when:
- Your tool has achieved significant adoption
- You identify clear opportunities to connect multiple stakeholders
- You see potential for others to build on your foundation
- You want to create defensibility beyond your core feature set

For early-stage projects like Kendo, focusing on solving a specific problem exceptionally well as a tool may be the prudent first step. The platform aspects can evolve organically as you identify opportunities to connect different groups and enable others to build on your foundation.

Remember that the most successful platforms often mastered being a great tool first, before expanding their vision to connect multiple sides of a market.