Thursday, July 31st, 2014
What came first, the chicken or the egg? The term “chicken-and-egg problem” is commonly used to describe a situation in which it is impossible to reach a certain desired outcome because a necessary precondition is not satisfied, while to meet that precondition in turn requires that the desired outcome has already been realized.
There is no real definitive answer to the “chicken-and-egg problem” else the problem wouldn’t exist. To escape the endless cycle of blaming chickens and eggs, we need to make a choice of which we thing came first; we must just pick one to make a meal out of.
For example, multi-sided platforms (also known as two-sided networks), bring together two distinct groups who each benefit from the other’s presence on the platform. Businesses that have created successful two-sided markets include Ebay (sellers and buyers), Google (advertisers and publishers), Paypal (buyers and merchants).
For a two-sided business to work, both producers and consumers need to be on the platform. However, producers won’t come to the platform without consumers and vice versa. Consumers act as a bait to get the producers to come in and vice versa.
To be successfull, we need to focus on one of these groups and try to bring them onto our platform. Ebay focused on buyers right from the beginning: The auction mechanism is a highly interactive process that capture and retains the buyers attention and Ebay charges their margin from sellers instead of the buyers.
In almost every two-sided market, one side is harder to acquire than the other. The most common way to attract the hard side is the ladies’ night strategy: reduce prices for the hard side, even to zero (e.g. Adobe Flash & PDF for end-users), or below zero (e.g. party promotors paying celebrities to attend).
Summing-up: Since consumers are a bait to producers and vice versa, this problem is typically solved by providing an alternate bait to one of the sides. Once one side is seeded, it acts as a bait for the other side to come on board.