Chicken or Egg Problem in an Online Platform Startup
This articles discusses problem of chicken or egg which is faced by every online platform. It also discusses how to solve this problem to grow the platform.
Wednesday April 29, 2020,
4 min Read
Online platform bring two parties, like for e.g. buyers and sellers, together to exchange goods, ideas or some kind of dealing or connection. These platforms face a typical unique problem in the initial phase. This problem is called Chicken or egg problem. It means online platforms are in dilemma - what to work on, bringing buyers first or bringing sellers first on the platform. As until there are no buyers, sellers have no interest to come to the platform and till there are sellers, why will buyers come? One thing is dependent on the other. It is a vicious circle of one type.
Once this vicious circle is broken, network effect takes effect and platform grows multiple times in no time.
All big platforms like facebook, uber, Yelp, tinder, paypal, youtube faced this problem in their initial days. For facebook, users will come only when there are others on the platform to connect with and be friends with. For uber to work, taxi drivers needed customers and customers cannot come until there are taxis on the road. For youtube to work, until someone uploads a video, why will anyone come to platform, and if there are few viewers, no one will want to create any content. These companies used different ideas to deal with this issue. If you are also an online platform startup and want to learn how to solve this critical issue, read the article ahead.
This problem seems to be insolvable and one may feel stuck but there are some hacks to crack it.
We will discuss these hacks in this article. If you like the article, please like it, share it and comment on it.
If you will study your platform closely you will find that one side is harder than the other. On platform which is for online trading, it may be difficult to get buyers, once you have buyers on the platform, sellers will come easily. In such a case, one should first focus on buyers first. One need to create demand side and supply side will come readily to meet that demand.
Work on the harder side first and other side will take care of itself.
One may incentivise the registrations in the initial period by offering some freebies or some exclusive rights to early users. You may give some credit in their wallet or some discounts which users can use once they undertake some transactions on the platform. There may be referral schemes which pay users to bring new users on the website. These hacks require initial investment in the venture which may not be possible for all.
Initial commitment is required in certain cases, like for eg in case of X-box, Microsoft had committed a sizable fund to the marketing of the platform which gave developers confidence that they can spend resources to develop games on this platform as microsoft will make it big and they will benefit.
One may encourage and incentivise the one side of the users to bring along with them, users on the other side as well. Local events or exhibitions may be used to make users aware of new website you have hosted.
Some companies in the past, resorted to some unethical methods like creating fake accounts or creating fake demand for users to register but such methods are strictly not advisable. As, if it is caught, company cannot stand in the market. Example of this may be, in case of online dating websites, the company may create few fake accounts and start interacting using these fake accounts with actual users. This will give impression that others are also using the website and it will attract new users.
Such unethical methods seem good in short term but patience pays in the long term.
You may decide to be producer yourself. For eg in case of video sharing website, you may decide to produce some content yourself and upload it and once users come to watch, other producers will also start creating content. Again in this method, you will need capital to create content yourself.
You may try one or more of these methods depending upon type of platform you have created. Not all methods will be suitable for you. Which one will you try?