Ever wondered how established brands like Esty, Uber, Amazon, and Airbnb resolved chicken and egg issue? A brand like Etsy, for example, is one of the best in the online marketplace with massive success. It is a platform that gives homegrown artists a chance to link up with art enthusiasts who admire it and want to buy such products. The more we talk about Etsy, the more we feel good and about it and give it a try.
But was it easy for these brands to deal with the problem? Not at all. It took a brand like Etsy a lot of effort to achieve what it has. It has to attract suppliers, art manufactures, homegrown artists among others to their platforms. There is one old trick that established brands use to attract stakeholders: to lure one stakeholder, you need another stakeholder thriving there. Performing brands like Amazon knew this riddle and actualized it. They simply sourced for the best independent artists and pitched them on opening up an online store on their website. This attracted other artists who wanted to open up online stores as well. And that, believe it or not, is how Etsy resolved the infamous Chicken and Egg Problem!
Most marketplaces have stumbled upon this problem. The successful ones like Amazon and Etsy have a clearly outlined plan on how to resolve it. This article will give you an in-depth look into their solutions, or rather, their strategies. Before we dive into the strategies, we should first understand what Chicken and Egg Problem mean. This will put you in a better position to understand the strategies discussed thereafter.
What comes first between the chicken and the egg? This old saying has a striking correlation with establishing an online market business. As you might know, every marketplace has two sets of players. The service providers or suppliers and consumers or buyers. The chicken and egg problem occurs whenever the value evolution of both separate groups is directly dependent on penetration in the other. To put it in simple terms, the buyers won’t come if there are no service providers on your platform. Similarly, service providers won’t be interested in selling their products in a platform where there are no buyers. So as a marketplace owner, where will you focus? The service providers or the customers? Well, that’s what is called the chicken and egg problem.
Discussed below are strategies available in the market that can help solve the chicken and egg problem. Read on to find out!
1. Enter with Significant Pre-Investment
A proper and significant upfront investment in your platform can signal stakeholders that it is safe to join your marketplace. This is technique is common especially in development platforms, where stakeholders incur a considerably high upfront cost to join a marketplace and high switching costs if they decide to leave. For the marketplace, making a high upfront investment means you ain’t leaving anytime soon and makes other stakeholders comfortable with making a long-term investment.
This strategy was best executed through Microsoft’s launch of the original Xbox. The company invested a massive $500M to promote the platform, passing a strong message that it is fully committed to its platform for the longest period possible. This is how Microsoft attracted third-party game developers who felt safe developing games for Xbox.
So for you to attract stakeholders, start with significant upfront investment. No one will take you seriously if you invest peanuts in your long-term project!
2. Acquire Service Providers
As soon as Airbnb started its operations, its founders realized that without the supply of apartments and houses, buyers are not going to visit their site. To tackle this problem, they asked themselves, if there were no Airbnb, where will people that need accommodation look for rooms? Craigslist was the answer. They also discovered that Craigslist had some flaws and wasn’t visually appealing. Smart enough, Airbnb saw an opportunity to leverage.
The founders saw they could come up with better-looking apartments than those in the online classified sites. To do this, they first had to siphon customers away from Craigslist. They came with software that could hack and extract contact info of property owners from Craigslist and then sent them a pitch. This strategy worked perfectly well. Property owners doubled their chances of finding potential renters and therefore agreed to list their properties to a much better website! Airbnb acquired a ready supply of homes, which it could use to attract potential customers.
There are always places and opportunities you can use to draw service providers to your platform. All you have to do be a little more creative and committed.
3. Build a Cooperative Strategy
Over a decade ago in 2007, Google was in a complicated position. It owned a desktop search, but the mobile internet was starting to rise. iPhone’s early runaway success worried Google that mobile would become Apple’s area of dominance. Lucky enough, it wasn’t Google alone that was worried. Handset mobile manufactures and other telecommunication companies shared the same fear. Google, therefore, created the OHA (Open Handset Alliance), a group specially dedicated to advancing Google’s Android OS.
In this case, Google effectively used a cooperative strategy. Instead of trying to create a network all on its own, Google capitalized on an already existing sales channels of companies in the OHA to sell out Android to consumers. Today, Android enjoys over 80% of worldwide market share having more than 1.3M apps on its Play Store. The strategy worked pretty well!
4. Ensure Excellent Service Providers
Uber used three very effective strategies to deal with the chicken and egg problem. First, they focused on the side of supply, seeking the cab drivers. They ensured that there is a lot of quality on the supply side. Secondly, uber tempted passengers using free rides. In their early days of operation, they used to cold-call professional taxi drivers and pitch them. They offered to pay an hourly rate for those drivers that tried out their new platform. This is how uber landed their first bunch of service providers who were capable of providing great services with a great lot of professional experience.
To lure passengers, Uber offered free rides to local events like the tech-savvy San Francisco community. This worked pretty well because a great number of people were attracted and started using Uber. Excellent services have been Uber’s accelerator to massive success.
Just like Uber, you have ensured you are providing excellent services. Good services will make customers loyal and happy. And the secret to a successful business is keeping your customers happy and satisfied.
5. Act as a Producer
Why bother attaining two user groups at once when you can focus on one? That is the reasoning at the centre of this strategy, where the marketplace acts as the producer to attract a group of consumers. It then uses an already existing consumer base to bring in consumers. This strategy means you have to start as basic linear business and then, later on, open up your ecosystem as you start scaling.
This strategy was well executed by iPhone. When it first launched, Apple did not allow any third party applications. But once it attracted a large number of buyers and consumers, the iPhone launched App Store to instant success. Amazon is another company that cleverly executed this strategy. It started out fulfilling its customer orders on its own, however, as it grew, it opened up the Amazon Marketplace Platform. Over 2 billion items were sold on Amazon that year, a new record. They now make up over 40 per cent of the site’s annual sales.
6. Build a Community like Tinder
The Tinder dating app is another inspiration for bringing two stakeholders in one place. When they first launched the app, Tinder founders realized they have a unique problem. For the app to be successful, they needed both women and men to be interested and active on their platform.
Tinder’s Co-Founder, Whitney Wolfe, visited a community of women motivating them to register in the app. She explained to them how cool and useful it is. She also went ahead and gave presentations to the male communities, telling them the app was full of those beautiful local girls, who by then had already registered. Upon the complication of her sensitization trip, over 15,000 new users had already used the app! Whitney ensured all her attendees installed the app after her interesting solid presentations.
Tinder reached out to their stakeholders, both women and women to solve the chicken and egg puzzle. They put in significant efforts to ensure users installed the app. This could also work for you, don’t hesitate trying it out!
7. Create a Single or Double Sided Marquee Strategy
High-value users will help you attract other users who want to get in touch with them. Their involvement and participation in your marketplace bring extra value to it. Many platforms will, therefore, make efforts to bring high-value users to participate in their projects.
When was launched, it subsidized car participation through paying drivers even when they were not transporting customers. This brought in a high-value bunch of producers which in turn attracted well-paying customers.
Another classic example of this strategy is dating websites. Their population tends to mostly male, so they let women join for free. Popular dating sites like Coffee Meets Bagel have gone even a step further by designing the experience that appeals to women, keeping in mind that if women join, men will too.
In addition, Facebook also used this strategy to penetrate the school’s market. It did so through getting its network to Ivy League schools first. It then used the prestige of Ivy League schools to help market it to other schools.
8. Find an Enterprise Client
To kick off your marketplace journey with a bang, find an enterprise client. A big name brand value will work perfectly for you. Instead of coming up with a large supply side with a subsequent amount of small vendors, you can ensure a larger effect simply by landing a big client. The big-name enterprise clients often have a large amount of money to spend on the demand side. One single contract can get you running and focusing all your efforts on building and establishing the supply side.
Quora is one company that executed this strategy effectively. When its founders, Adam D’Angelo &, Co started it, they invited top brands to ask and answer questions on the platform. For a start, it was an invite-only kind of website and only a few individuals got the opportunity to check out the website. These few invited people were very successful in silicon valley, mainly the people around the founder’s circle. There popularity and influence on Quora made the Q & A platform very successful.
Enterprise clients are, therefore, very important for any marketplace. They reduce the hustle of generating multiple service providers for a starting marketplace platform. Their massive influence and strong connection will bring your platform into notable limelight, without a lot of effort. The question is, are you willing and able to fish one for your marketplace?
9. Target a User Group to Fill both Sides
This is idea is almost similar to what we discussed in strategy #4: making a two-sided market one-sided. Your goal here is finding a user group that can satisfy both your producer and consumer roles. In that manner, you will no longer need to worry about getting on board two separate user groups.
This is the technique that handmade goods platform, Etsy, put into use. Its founders did early research and found out that people that are more likely to buy handmade products are also those that sold them. Etsy, therefore, decided to focus on this user group and use it as both producers and consumers before expanding into other audiences. This strategy worked out perfectly as more people joined the platform, increasing sales and its domination at large.