Airbnb, Uber and Facebook have disrupted traditional industries and brought new opportunities to consumers and businesses alike. Once a platform business is large and established, it is hard to dislodge, because one side of the platform feeds the other. The more hosts Airbnb has, the more people want to use it, even with Facebook’s recent foibles, if many of your connections are on it, it is hard to leave.
But what were these platforms like before they had critical mass? Platforms, by definition, are connectors of one set of users to another. If there are no users, the platform is redundant. A phone is useless if you are the only person who has one.
You do not need technology to get started
A functioning platform does not have to involve technology. A market square is a platform that has connected farmers to shoppers since Biblical times. Technology is what makes a platform scalable, but when you have nothing, scale is not one of your concerns. To get started, businesses that aim to become platforms can begin by creating value for their users before they have any technology.
Stephanie Ramezan, founder of Quince Capital, a platform which connects early stage companies to family offices, says, “I started transacting about nine months before I had a platform. I talked about the platform as if it was already there, but it wasn’t yet.” Not only does this help start the business, it also validates the user need before making any investment into technology. Ramezan says, “I knew I would have potential users because I got feedback on the pain points of investors, which helped me set the platform up.”
Robyn Exton, founder of HER, a queer women’s network and dating app, said, “I did a few things before launching the app. I started a blog and a newsletter with queer content. I went to a Pride with a camera and took photos of everyone. I gave the people I photographed cards with a website of where they could find the photos if they gave their email address. That way, I compiled a list of people to tell about the app when it was ready.”
Decide which side of the platform matters most
While a platform needs two sides of participants to be active, one side is usually more important at the start. For example, in the early days of YouTube, the founders focused on getting content creators on board, because content needed to be on the platform before YouTube could become interesting to an audience. The company ran contests to get creators to upload content and shared advertising revenue with the top content creators.
Financial incentives work, but they cannot last forever
Before a platform is active enough to generate its own network effects, platform founders often sponsor one side of the platform, in order to kickstart growth. In a lecture PayPal co-founder Peter Thiel gave at Stanford University, he explained the company’s early explosive growth:
“New customers got $10 for signing up, and existing ones for $10 for referrals. Growth went exponential, and PayPal wound up paying $20 for each new customer. It felt like things were working and not working at the same time; 7 to 10% daily growth and 100 million users was good. No revenues and an exponentially growing cost structure were not. Things felt a little unstable.”
Seed content first
Platform founders often create user profiles and content to show new users what the platform is for and how they want people to interact. Most users look around the platform first to see how others behave and then act similarly. It is the same as getting to a new venue; we look around at what others are doing and adapt our behavior. This is why the same person will act very differently in a mosh pit to how they act in a church.
For example, the founders of Quora, a question and answer platform, created questions and answered them under different profiles. Eventually, users started asking their own questions, but the Quora editorial team still wrote the answers. As the platform grew, both the questions and the answers came from users.
All platforms approach this chicken and egg problem differently, and what works for one does not necessarily work for another. Platform Revolution, a book by Marshall W. Van Alstyne, Sangeet Paul Choudary and Geoffrey G. Parker, has a diverse set of case studies of platforms and market places, and is a great source to get ideas.
However, start-ups are a contact sport and the best way to learn what works for a new platform, is to try different methods until one works.
