I have talked to many people who believe that starting and running an e-commerce platform (e.g. one which connects buyers and sellers ) is easier and less demanding than actually starting and running your own online shop. Unfortunately in the real world the opposite often tends to be true. E-commerce platforms—or the successful ones, at least—tend to have a higher barrier to entry than their retailer counterparts. The creators of these platforms often have to contend with what is often called the chicken and egg problem. Failure to come up with a solution to this problem for a platform often means that it will die a very steady demise—if it is even able to get off the ground in the first place.
What is it
Multisided platforms are those businesses which provide value by connecting two or more parties. A few well-known examples are marketplaces like Alibaba and eBay (which connect buyers and sellers), AirBnB (short term renters and property owners) and Uber which connects taxis with passengers. What some may fail to immediately realise is that these companies’ business models are incredibly difficult to pull off, especially in the early days. The reason for this is that they are effectively serving two different groups of users and the platform is only valuable to either one of the other side is already there (preferably in abundance) and vice versa.
In the case of those platforms which are supposed to connect buyers and sellers, the new e-commerce platform is only appealing to buyers if there are already a large number of sellers on it and the opposite is also true for the other group, the sellers. This problem is then how do you get any one side on board if you also need to already have the other one for that to happen. Hopefully, those trying to build such platforms will find the tips and strategies compiled below useful.
The chicken and egg problem is all the more daunting because even throwing money at it is rarely effective. Even if conventional advertising is used interested people will be hard-pressed to join your platform if the value which should be provided by the absent complimentary user group is not there yet. The World Wide Web is rapidly expanding and it is highly unlikely that any appreciable number of people would bother signing up on a new platform just so that they can wait and see if the owners will ever be able to able to figure out the other side of the equation. This would imply that both user groups need to be grown simultaneously to succeed but as mentioned earlier, this is often tricky if not downright impossible.
Sometimes if the platform is grown slowly and steadily enough, something akin to simultaneous growth is possible. For instance, you can start by first convincing smaller communities and groups to participate and then use these early successes to build momentum. As an example, suppose you are trying to build an online marketplace for agricultural or horticultural produce: you can seed the growth of your platform by inviting individual farmers and their customers such as restaurants and caterers personally.
Subsidize one or more sides
A group of other strategies for solving the problem involves focusing on growing one side of the platform during its early days (or even later). One way of doing this is subsidizing growth. The actual form which the subsidies take will depend on the type of the platform. Platforms which facilitate the buying and selling of products or services can, for instance, offer discounts, freebies and various other promotions to attract new buyers. Since a platform doesn’t provide the products or services sold on it, it will actually have to reimburse the sellers for any discounts it provides.
Increase the standalone value of your platform
Sometimes growing any one side of the platform may require that you increase the standalone value of the platform itself i.e. make it worthwhile for users even if there is no other side. A buying and selling marketplace can, for instance, start as an online shop and then evolve into a marketplace after acquiring a large enough user base of potential buyers for any would-be sellers.
Acquire high-value participants
A marketplace can also be boosted by signing up a major participant as part of either user group. Remember our horticultural produce marketplace form earlier? Think about how much easier it would be to sign up farmers after announcing that a major retail chain has signed up as a buyer. The inevitable influx of farmers will then cause even more buyers to sign up as the platform suddenly becomes even more valuable.
Piggyback on an existing platform
A platform can also take advantage of another one to get off the ground. As a developer, I am often contacted by potential clients with ideas for apps or websites inspired by the activity taking place in various Facebook or Whatsapp groups. I say that instead of using these platforms as mere inspiration why not also piggyback on them to grow your new platform—after all, both types of users for your new platform are already right there. So instead of just creating a website for connecting landlords with potential tenants after seeing a successful Facebook group doing the same, you can also heavily promote your new platform on it.