Edelman B. – April 2015
For online platform businesses, customer mobilization challenges loom large. The most successful platforms connect two or more types of users—buyers and sellers on a shopping portal, travelers and hotel operators on a booking service—and a strong launch usually requires convincing early users to join even before the platform reaches scale.
Customers find Skype worth installing only if there are people on the platform to talk to. Who would join PayPal if there were no one to pay? Every platform starts out empty, making these worries particularly acute. For multisided platforms, which need not only many users, but many users of different types, the risk is even greater. It’s not enough for a ride-sharing platform to have a large base of customers who want to book taxis by smartphone. It also needs drivers willing to accept those bookings.
Despite these challenges, the number of online platforms has spiked in recent years. It’s not hard to see why entrepreneurs are drawn to these businesses: They create significant value by enabling communication and commerce that might not otherwise occur. They have modest operating costs because they don’t usually manufacture tangible goods or hold inventory. And network effects protect their position once established; users rarely leave a vibrant platform.