multi-sided business models - how to break the chicken and egg problem
TRANSCRIPT
MULTI-SIDED BUSINESS MODELSHOW TO BREAK THE CHICKEN AND EGG PROBLEM – A FRAMEWORK
JITHAMITHRA THATHACHARI
jitha.me
CONTENTS
What are multi-sided business models?
How to scale a multi-sided business – A framework
Checklist to apply the framework to your own business
Note: Based on How Uber solved its chicken and egg problem (and you can too!)
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CONTENTS
What are multi-sided business models?
How to scale a multi-sided business – A framework
Checklist to apply the framework to your own business
jitha.me
WHAT ARE MULTI-SIDED BUSINESS MODELS?
A multi-sided business is a platform which connects two or more distinct user groups that provide benefits to each other
In the simplest case, a two-sided platform connects buyers and sellers
Connecting drivers and passengers
Connecting buyers and sellers
Connecting homestays and tourists
Connecting app developers and mobile users
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MULTI-SIDED MODELS – THE CHICKEN-AND-EGG PROBLEM
Multi-sided businesses, once established, offer a high barrier to entry; however, they’re incredibly hard to build, due to the chicken-and-egg problem
High barrier to entry…
Other players will need to create all sides of the platform
simultaneously, to compete effectively
…But hard to build
To work, the multi-sided model needs to be valuable to
the very first customers on all sides
– Users on one side of the business model find the
platform useful only if the other side also exists
People buy video game consoles only if there are enough games they can play, but game designers develop games for a console only if it has enough users
Thus, multi-sided models suffer from the proverbial chicken-and-egg problem
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MULTI-SIDED MODELS – THE CHICKEN-AND-EGG PROBLEM
Even in a two-sided model, both supply- and demand-sides need to be built together, to be useful
How does one break this deadlock?
Multi-sided
PlatformSellers Buyers
Find value in the platform only if there
are enough buyers
Find value in the platform only if there’s enough
choice (i.e., sellers)
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CONTENTS
What are multi-sided business models?
How to scale a multi-sided business – A framework
Checklist to apply the framework to your own business
jitha.me
BREAKING THE CHICKEN-AND-EGG PROBLEM – A FRAMEWORK
There are four ways in which multi-sided platforms can successfully break the deadlock
Slow and steady
Jumpstart
Fake it till you make it
Bait and switch
Build the different sides together, in lockstep
Get one side up quickly, then build the others
Build one side up gradually with a makeshift offering, and then
bring in the other
Start with a single-sided value proposition to build one side, and
then introduce the multi-sided offering
1
2
3
4
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SLOW AND STEADY
Start small, building both sides together for a narrower base – a town, a community, or a specific consumer segment; then, gradually expand to more towns, communities or segments
1
Multi-sided
PlatformSellers Buyers
Create supply in a very small cohort – e.g., a
small town
Target buyers in the same narrow cohort
By starting small, one can obtain cross-network effects, and satisfy both sides from the very beginning
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SLOW AND STEADY – EXAMPLES
There are numerous examples of multi-sided businesses that started small, by focusing on one city, one community, or even a specific consumer segment
1
Company Initial Users
One citySan Francisco
One CampusUniversity of Arizona
One segmentBook lovers
Note: Read How Uber solved its chicken and egg problem (and you can too!) for more info
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JUMPSTART
Get one side of the model up quickly, and then gradually build the other
2
Multi-sided
PlatformBuyers
Then build consumer base gradually, offering them
high-quality service
If you’re able to get one side of the value proposition up quickly, then you can build the other side more sustainably
Sellers
Get sellers on board quickly through
various mechanisms
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JUMPSTART – EXAMPLES
There are three ways to jumpstart a multi-sided business by building one side quickly
2
Note: Read How Uber solved its chicken and egg problem (and you can too!) for more info
Partnerships
Easy, Low-Risk Onboarding
Subsidize Initial Adoption
Opportunistically partner with someone who already has a large
user base on one side
– Google partnered with Netscape to become its default search
engine; tied up with Yahoo! to power its search
Make it easy and low-risk for one side to come on board in
advance of the other side; minimize downside
– Uber makes it very simple for drivers to come on board, and
even gives them a phone!
– Belly Card gave its retailers a low-risk, easy-to-install and low-
friction loyalty solution
Make it low cost for one side to come on board
– Xbox and Sony Playstation are sold to users at subsidized
rates, to speed up initial adoption
A
B
C
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FAKE IT TILL YOU MAKE IT
Create a makeshift offering on one side of the platform to attract the other side, and then build both gradually
3
Multi-sided
PlatformBuyers
Offer service to gradually build buyer base, before
getting actual sellers
If you can offer the service without actually building one side up first, you can break the chicken-and-egg deadlock
Sellers
Create makeshift offering, without actually getting sellers on board
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FAKE IT TILL YOU MAKE IT – EXAMPLES
There are two ways in which you can put together a makeshift offering on one side without actually building it
3
Be the counterparty till the real counterparty appearsA
Use existing systems or servicesB
Most ecommerce players start with inventory
models (where they are themselves the seller),
before getting actual sellers on board and
transforming to a marketplace
Zappos and Flipkart started without any actual
inventory; whenever a user purchased an item, they
would buy the product from a physical store and
ship it
Note: Read How Uber solved its chicken and egg problem (and you can too!) for more info
jitha.me
BAIT & SWITCH
Create a one-sided model first, offering a targeted value proposition; after one side is built, introduce the multi-sided offering
4
Multi-sided
Platform
Offer a single-sided service to build user base
first
By launching with a one-sided offering, you avoid the chicken-and-egg problem that prevents you from starting
Sellers
Create seller-side after buyer-side has been built
Buyers
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BAIT & SWITCH – EXAMPLES
Many successful multi-sided models started with a focused one-sided offering to build a user base, before layering on a (different) multi-sided value proposition
4
Square started as a simple payment solution for
retailers, before layering on the consumer-side
value proposition (deals and coupons)
LinkedIn started as a pure-play network for
professionals; today, a huge user base allows it to
offer unique solutions for recruiters, jobseekers, etc.
Zomato started as a simple information portal on
restaurants; after building a large user base, it
started offering adjacent services – online ordering,
table reservations, etc.
Note: Read How Uber solved its chicken and egg problem (and you can too!) for more info
jitha.me
CONTENTS
What are multi-sided business models?
How to scale a multi-sided business – A framework
Checklist to apply the framework to your own business
jitha.me
THE CHICKEN AND EGG CHECKLIST – HOW TO USE IT
This checklist will help you develop your own strategy to break the
chicken-and-egg problem in your multi-sided business
Use it as a tool to facilitate brainstorming – use each question in the
checklist to think of tactics to break the buyer-seller deadlock in your
multi-sided business model
The different tactics are not mutually exclusive; you can use multiple
tactics from among these to break the buyer-seller deadlock
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THE CHICKEN AND EGG CHECKLIST [1/2]
Type of Tactic
Questions If “Yes”
Slow and Steady
Can you start in one city / locality? Which locality? ________
Can you start with one specific service? Which service? ________
Can you start with one consumer segment? Which segment? _______
Jumpstart
Can you leverage network effects by getting one side of the business (either buyers or sellers) in place?
Which side? _______
Can you partner with someone in an adjacent market, to reach their user base?
With whom? ________
Can you partner with someone in an adjacent market, to access their supplier network?
With whom? ________
Can you partner with someone in an adjacent market, to access their platform technology?
With whom? ________
Can you reduce risk of coming on board for one side (usually sellers / side that generates network effects)?
How? ________
Can you give one side (usually sellers) some perks for coming on board?
What perks? ________
Can you simplify onboarding (1-step registration) for one side (applicable to both buyers and sellers)?
How? ________
Can you give one side a subsidy to speed up adoption? Which side? _______
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THE CHICKEN AND EGG CHECKLIST [2/2]
Type of Tactic
Questions If “Yes”
Fake it till you make it
Can you temporarily act as one side of the business (usually the seller-side)?
How? ________
Do some parts of your offering already exist individually?
Which parts? ________
Can you temporarily use the above existing services to deliver the offering for your initial (small) user base?
What services? ________
Bait &Switch
Are there any other single-sided services that your buyers / sellers need?
What services? ________
Can you offer any of these single-sided services, to build user base on one side of the platform?
What services? ________
Can you build an information portal for any side(s) of your platform?
Which sides? ________
BACKGROUND
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BRIEF BACKGROUND
Co-founder of Rouse Digital – building Smart Saver, a platform
where consumers can get rewards on their daily purchases
Writer on startups, business and strategy at jitha.me
– Featured in YourStory, Rediff, and other publications
– Curate two widely subscribed newsletters – So it Goes
(entrepreneurship, business and strategy) and The Startup
Weekly (primarily startup-related articles)
Ex-Project Manager at Monitor Group (now Monitor Deloitte), a
strategy consulting firm started by Michael Porter
MBA, IIM Ahmedabad; B. E. Computer Science, Mumbai University
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CONTACT DETAILS
Email: [email protected]
Twitter: @jithamithra
Website: jitha.me (Subscribe here)
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