How to Tap into Multi-Sided Networks for Exponential Growth
Whether you’re beginning from scratch with a startup or looking to take your existing business to the next level, a platform model can facilitate value creation at a rate that no other business model can match.
A platform-based business has the ability to reach or exceed the value of a traditional business model in one-tenth of the time . It does this by eliminating the costs and constraints that come with keeping your operations “in-house.”
Given that platforms are simpler to maintain, more cost effective, and exponentially faster-growing, adopting a platform business is quite the enticing prospect. But before you embark on your platform development journey, you’ll need to come up with a plan for overcoming the biggest challenge of starting up, or transitioning to a platform. We call this challenge “the chicken or egg problem.” Failing to address this challenge appropriately could very well end your platform business ambitions before they’ve begun.
Solving the Chicken or Egg Problem
In a platform business, producers and consumers are your chicken and egg. The challenge here is that your platform has no value until you have participants on both sides . Here’s the really tricky part: If you don’t get both producers and consumers onboard at roughly the same time, or in close succession, the group that gets on board first will find no value in having joined and will fail to use your platform. This can cause user engagement to sputter out before the other group gets involved to make the whole thing work.
We can use Uber as an example of this problem. Imagine if only riders (the consumers) joined Uber in the beginning, but no drivers (producers). What would happen? The riders would see that there were no drivers available to take them where they needed to go, and they’d likely write off the Uber app as a failure and never look back.
So how did Uber and other successful platforms manage to get a virtuous cycle of producers and consumers engaging with their software early on? They each employed one or more of these eight launch strategies.
The right strategy for your launch depends on the particulars of your business. Some strategies will be more appropriate than others. You’ll want to take advantage of those that will be the most effective at engaging your target users. Adopting several of the strategies increases your chances of getting enough users on both sides so that your platform really takes off.
- Follow-the-rabbit Strategy
Open your existing business to external suppliers. One way to accomplish this is to expand your platform, giving producers a way to sign up and offer their own products or services.
Amazon.com launched Amazon Marketplace, opening their platform to external producers. This allowed them to expand at a much faster rate.
Apple’s App Store opened up to third party developers, getting 30% of all revenue from third-party apps. The increase in available software has the added benefit of improving the value of the the iPhone and iPad.
- Piggyback Strategy
Build off of another platform that already has a large base of users to promote your own products.
Warby Parker, a seller of glasses, used existing social media networks to promote their products. They had customers upload photos of themselves wearing their frames to generate feedback about which ones to purchase. This generated outstanding consumer exposure.
YouTube got its start by making it easier for bands to share their videos on MySpace. Once they achieved viral adoption, they launched their own platform and MySpace users migrated over.
- Seedling Strategy
Become your own first producer. Once you have a base of consumers for your own products, open up your platform to outside producers.
Reddit started out by generating their own online content. Their content drew in a crowd of consumers, which then attracted outside producers to join in and generate content on the platform.
Android hired the first producers of their apps to try and close the gap with Apple’s App Store. These first apps established a consumer base, which then motivated producers to keep developing more apps on their own.
- Marquee Strategy
The “If all else fails, pay your initial members to join” strategy. The key to this one is that whatever you use to incentivize your initial members to join needs to encourage them to actually use the platform after they’ve received their reward.
Paypal gave $10 to new consumers just for joining or inviting a friend to join. Those consumers had to use their paypal account in order to access their reward money, incentivizing them to interact with the platform [K1] .
Swiss Post was able to completely eliminate their physical mail delivery service and get all their consumers on board with email by incentivizing stragglers with free iPads. As a fun side note, this led to the Swiss Post becoming one of the world’s leading resellers of Apple products.
- Single-Side Strategy
Create a one-sided, viable product business first. Once you build a solid consumer base, open up the business to outside consumers or producers.
OpenTable created reservation management software for restaurants. Once they had a critical mass of restaurants using it, they added a self-service interface for customers to reserve their own restaurant tables.
Del.icio.us , a link sharing site, was initially used by consumers to track their own content. Once they got enough consumers, they created a sharing feature so that users could share their links with others, turning consumers into producers as well.
- Producer Evangelism Strategy
Design your platform to attract producers first, and let them do all the advertising for you.
Skillshare, a training site, convinced prominent and well-respected teachers and trainers to begin using their platform. After posting their own content, those teachers then shared it on their social networks or sent invites via other methods like email. They included information about how to attend one of their classes on Skillshare. The consumers they attracted to sign up for their classes were then presented with training content created by other users, which generated more and more activity.
- Big Bang Strategy
Use traditional push marketing strategies to attract both producers and consumers at the same time. This can be very effective particularly when there’s a lot of overlap between the producer and consumer stakeholder groups.
Twitter launched their platform at a SXSW music festival in Austin. Since people who read tweets also likely write their own, Twitter was able to obtain both their producers and consumers using the same advertising method.
- Micromarket Strategy
Target a small, concentrated community rather than attempting to gain adoption in a wide area or with a wide set of users. Micromarkets can be specific to geography or interest group.
Facebook launched at Harvard and used the school’s network of students to spread the word about the platform. This resulted in a high concentration of users within that small group, which made the platform very valuable to those specific set of users.
Why? Because users were much more likely to be in close proximity to other users. Conversely, on MySpace the chances of encountering another user from your surrounding area were much smaller. This made Facebook an appealing alternative.
Before You Launch: Nailing Your Platform Design
Platforms create enormous business value because of the positive network effects they create. However, to create those positive effects, the interaction between producers and consumers must be carefully designed to reduce transaction frictions. Before launching, you need to ensure that consumers can quickly locate the value they are seeking, without being overwhelmed by options.
Each of these eight strategies for designing core interactions on platforms has its benefits and drawbacks. Before launching, carefully weigh these strategies, considering the implications of each method in light of your unique value proposition.
For an in-depth look at the research behind these eight launch strategies, check out The Platform Revolution, a book by Sangeet Choudary, Marshall Alstyne, and Geoffrey Parker.