Prentation 4: Launch & growth strategies: solving the chicken & egg problem

What problem can arise by launching a platform?

• the mutual baiting problem called Chicken & Egg problem:

  • Platforms need two sides to create value: producers attract consumers, consumers attract producers

  • But neither joins without the other

  • Without one side, the other won´t join: creating a deadlock before the platform even starts (bait can break the deadlock)

→ How do I get both sides of the platform?

Explain the Chicken & Egg Problem on the Example of Tinder.

1. Tinder needed onboard both parties simultaneously to be successfull: Women and Men

2. Tinder used a baid (Köder) to gain traction (Fuß fassen) on one side and than bring in the other side

• Using a “Party Strategy” to get women on the app (e.g. hosted launch parties on college campuses; showing the downloaded app was the entry ticket)

  • result: both sides onboarded simultaneously in a dense, local environment (critical mass reached; Network effects took over) → Big Bang Adoption Strategy

→ Baid: Parties on colleges campuses → enabled cross-side network effects to kick in (often subsidy as the bait)

What two starting points exists when platform owner wants to launch a platform? (Solving the chicken & egg Problem)

1. New Platforms without a user-base: 8 launch strategies

2. Existing platforms with a user-base: Platform envelopment

Name the 8 launch strategies to attract users to new platforms without a user-base.

Sequential: Prioritize one side, then expand to the other

1. Follow the rabbit (e.g. amazon, intel)

2. Seeding (e.g. Adobe, reddit, Paypal)

3. Single-side strategy (e.g. OpenTable)

4. Producer evangelism (e.g. Kickstarter, udemy)

Simultaneous: Develop all market sides in parallel

5. Piggybacking strategy (e.g. Paypal, Youtube)

6. Marquee user strategy (e.g. PlayStation, PayPal)

7. Big bang adoption strategy (e.g. Twitter, Foursquare)

8. Micromarket strategy (e.g. Facebook, Stack Overflow)

Discribe the four seuqntial launch strategies to attract users to new platforms.

Follow the rabbit:

• Build a successful one-sided platform use case

• Act as the missing side yourself (replace missing participants)

• Validate the value proposition (e.g. draw users with illusion of activity)

• Add the second side and scale the platform

→ platform is pretending to be one side e.g. (fake buyers/sellers/profiles) → Become the missing side

Seeding:

• Create initial value units to attract one side of the market

• This triggers the other side

• Value units can be real, borrowed (geliehen) or simulated

• e.g. PayPal faked consumer demand by purchasing and paying with PayPal

• e.g. Reddit: Faked supply of content

→ platform created valuable content or transactions (e.g. fake content/transaction/reviews) → Create the first value

Single-side:

• Start with a standalone product or service

• Then build a platform around the existing customer base

• Introduce the second side

• Grow network effects and platform value

• e.g. Restaurants use Softwar, upload real-time inventory though OpenTable)

• e.g. Amazon as a regular pipeline business before opening to be a platform

• e.g. Facebook offering ocial networking 35 month before selling gifts

Producer evangelism:

• Attract producers who already have customers

• Convert (umwandel) their customers to users

• e.g. Kickstarter target founders and creators; provide infrastructure

Discribe the four simultaneous launch strategies to attract users to new platforms.

Piggybacking:

• Use an existing user base from another platform

• Generate early interactions

• Gradually migrate users

Marquee user:

• Use key players as bait

• Attract other participants

• e.g SAP collaborated with ADP

• e.g. Microsoft bought bungie for Halo

• e.g. Malls sign up anchor stores

Big bag adoption:

• Create a critical mass of participants at the same time

• Instandly (sofort) fill and activate the platform

• e.g. Tinder

• e.g. Twitter paid 11,000$ to install pair of giant screens at SXSW film festival

Micromarket:

• Focus on a dense (dicht) micro-market

• Leverage strong engagement and immediate interactions

• scale from here

• e.g. Facebook: exclusive to harvard at launch; Although it served a limited market there were very strng network effects

• e.g. Ebay started with PEZ dispensers and barbie dolls

Classify the strategies by using the classification of consumer-first and producer-first strategy.

Consumer-First: Users first than producers

• Seeding (fake content for users)

• Follow the Rabbit

• Piggybacking

• Big Bang (often both simultaneously)
  
  
  

Producer-First: Producer first than consumers

• Producer Evangelism

• OpenTable

• Kickstarter

• Udemy
  
  

Both simultaneously:

• Big Bang

• Micromarket

• Marquee Users

Describe Platform envelopment to attract users to existing platforms with a user-base.

• Existing platforms use their current user base to enter a new platform market

  • existing platforms expands into a new but related market

  • Leverages (hebeln) existing users and network effects to enter adjacent (angrenzende) markets

  • Reduces the Chicken & Egg Problem

  • Competes with standalone platforms through ecosystem expansion

→ Established platforms can bypass the startup phase by moving their existing user base into new markets

Explain Platform envelopment with the Example of LinkedIn (Linked x indeed).

1. LinkedIn started as a platform for professionals & companies: Strong user base & network effects

2. Expansion into job market by LinkedIn Jobs: User base brought to job market

→ LinkedIn leveraged its existing user base to bypass (umgehen) the chicken-and-egg problem and systematically enveloped Monster in the job market

What can go wrong when growth is too fast?

1. Congestion:

• Too many users degrade (vermindert) service quality

• e.g. ebay: too much competition between sellers

  • Negative same-side network effects:

    • Excessive seller competition reduces visibility and value for individual sellers

2. Search friction:

• Too much content makes it harder for users to find relevant results

• e.g. amazon marketplace: Overwhelming number of similar products

  • Negative cross-side network effects:

    • Choice overload makes it harder for buyers to find suitable products

• Operational overload:

  • The company can not scale operations as fast as user growth

  • e.g. Uber: Driver shortages (Mangel) and customer support issues during global epansion

    • negative cross-side network effects: Service degradation reduces value for both riders and drivers

→ One, two, or all three can happen simultaneously.

A platform owner wants to attract both producers and consumers at the same time at launch. Explain the concept of simultaneous onboarding and name two strategies that follow this approach. What distinguishes them from sequential strategies?

• sequential: attract one side first, than the other

• simultaneous onboarding: attrac both side the same time/paralel

  • e.g. Piggybacking, Marquee User, Big Bang Adoption, Micromarket

A new food-delivery startup has no restaurants and no customers. Explain the Chicken & Egg problem in this context and name two concrete launch strategies the startup could use to solve it.

Chicken & Egg:

Restaurants won't join → No customers.

Customers won't join → No restaurants.

Solutions:

• Micromarket: Start in one university district

• Producer Evangelism: Recruit restaurants first

• Piggybacking: Use Instagram community

• Big Bang: Large launch campaign