How do Skillshare and Kickstarter get to network effects?
Getting both producers and consumers on the platform is incredibly difficult especially on platforms where both sides are quite often clearly distinct groups. Designing your platform so that your producers can bring along consumers is a great strategy for seeding a platform while concentrating on only one side of the market.
This works well under two scenarios.
A. There is a clear incentive for producers to bring consumers on the platform. This typically happens when the platform helps the producers manage or interact with consumers more efficiently.
B. The ‘off-platform’ reputation of the producers attracts the consumers to the platform. Exploiting off-platform dynamics always helps while seeding and growing a platform.
This model works really well for all those loyalty startups out there. Perx, Shopkick, Tagtile are all classic cases of this scenario where the merchants are signed up and the platform essentially helps merchants cater to their existing set of consumers to make them more sticky. The retailers encourage their customers to use the platform. Hence, creation of one side of the network leads to creation of the other side. Over time, the merchants benefit from some data-driven cross-pollination here as other consumers on the network (brought on by other merchants) who are interested in their products and services are directed across to them.
When I first shared this thought on Quora, one of the readers responded with how this strategy had worked very well for his startup, Willstream Labs.
Willstream Labs is a cross-border remittance play with a twist: It allows its users (global migrants) to send funds to their home country but also gives them control over how these funds get spent back home at certain specific organizations. The migrant is typically interested in ensuring the funds get deployed at the right organization and are not handled by some intermediary beneficiary. As a result, Willstream Labs allows users to refer/invite the specific organizations (similar to importing one’s friends on a social network). This has helped them build out a two-sided network by focusing exclusively on only one side and helping them transact with the other side.
Google doesn’t spend much by way of getting consumers to buy an Android phone. The handset manufacturers do that. The handset manufacturers, in this case, are the producers using the Android OS to create new phones.
Platforms that provide production tools (and not just distribution or transaction tools) especially to producers who have few other options benefit immensely from this strategy.
Youtube, WordPress and most content hosting platforms, for that matter, grow in a similar way by providing users with creative tools (video hosting and content blogging respectively). Once users produce, they become marketing agents for the platform to get other consumers in.
High-quality producers attract consumers. Tutorspree does this quite effectively. The online education platform focuses on getting high-quality tutors on board. As of mid-2012, there were 6000 tutors on the service with approximately one in every three applicants being expected as tutors. These tutors evangelize the platform to their students who in turn spread the word about it.
We know that one. Malls have been doing this for the last 50 years. Get a big name retailer, give them good floor space and use that to attract consumers to the mall, who incidentally will get exposed to the smaller merchants too. Turns out, this strategy works equally well for digital platforms, especially content platforms, that need to take off and find adoption among producers. Ad networks use this strategy quite often by getting exclusive access to premium eyeballs and using that to lure in the advertisers.
Ultimately, it boils down to understanding the motivations of the producer side on the platform. What about the platform will make them draw other users onto the platform. Loyalty platforms help retailers manage their customers. YouTube helps budding musicians promote themselves. What does your platform do?
As countless marketplaces emerge, user stickiness will be key to scaling network effects
Contrary to popular wisdom, launching at a tech conference may be a bad idea unless you can leverage organic interactions at the event.