How Platforms and APIs Debugged the Technology Labor Market

Every career has an “efficient frontier” of compensation. On one end, there’s a job that pays you what you’re worth; on the other end, there’s a job that you know will pay for next month’s rent. In some sectors, you can switch from one to the other at the same company (being a full-commission salesperson instead of a salaried “account manager”). In the technology industry, there’s not a strong tradition of pure incentive-based compensation; I don’t know any designers who will get 10% of the extra revenue from a successful A/B test.

Actually, I know designers who will get basically 0%, a few who will get 20-50%, and a few who will get 100%. The 0%ers are the ones who work for someone else’s company; the 20%+ crowd started their own. In this industry, that looks like the simplest way to move along the continuum: if you’re at an established company, you’ll be lucky to capture $5,000 in extra cash from your million-dollar ideas. If you start your own company, the extra profits translate directly into higher value for your equity.

This used to create a troubling cycle among top talent: people would join a good company as an audition, but the more talented and ambitious they were, the better off they’d be starting a competitor (or at least joining one in the early stages). Hiring talented people was a great way to subsidize your next competitor.

That’s a nasty bug, but there’s a surprising solution. As more companies create APIs, platforms, and other ways to build something on top of an existing business, they create a middle ground between doing your own thing and working for someone else. If Twitter is missing a feature, you don’t have to build a better Twitter; you can make Twitter for stock traders—on Twitter!—or Facebook for casual games—on Facebook!

Stocktwits and Zynga both left money on the table by doing it that way. A Zynga as big as today’s Zynga, without the Facebook platform, might be earning hundreds of millions of dollars more in revenue over the next few years. Of course, Zynga without Facebook is inconceivable.

This creates a surprising new set of incentives for successful web companies. They can afford to care more about career upside; their most aggressive, ambitious employees might still quit, but they’re more likely to quit in order to build something using the APIs of the company they left (see Quora, founded by Facebook alumni—which used Facebook accounts to authenticate identity and market itself). Mark Zuckerberg can’t be happy that Adam D’Angelo and Charlie Cheever quit Facebook to start Quora, but at least the path of least resistance was to leave Facebook in order to build a site that made Facebook a little more useful.

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| August 4th, 2010 | Posted in economics, technology |