Chicken and Egg Problem: How to make a two-sided market one-sided

So here’s the challenge with a two-sided network. You want to get both the consumers and the producers onto the network and the producers won’t come there until the consumers do and vice versa.

And here’s the ridiculously trivial solution that seems to work very well in some cases. Target a specific group which has both the consumers and the producers of your service and where the lines between them blur. Even if they are two distinct types of users, the members of this group fulfill both requirements, or, at least, some of them do. This is important because the WOM required to spread the word among the producers simultaneously spreads the word among the consumers as well since they’re part of the same group. You don’t have to go around targeting two different groups which has a 2X impact on the difficulty and a 4X impact on the risk (you succeed if and only if you get both sides)

This is what worked for Etsy. Etsy is a niche marketplace for creators of arts and crafts. As the founders of Etsy discovered, people who make crafts typically like to buy from other craftspeople. This really helped them target exactly one group and spark transactions within that successfully. The buyers and sellers happened to be in the same community which helped Etsy focus its efforts.

Read more about the chicken and egg problem

Another example is the case of Intuit’s textWeb, an SMS-publishing platform where online publishers can instantly create SMS-based services from their content. txtWeb needed to get traction among developers (who would create the SMS-based services) as well as consumers. And txtWeb did this by targeting engineering college students in India, a group which typically had the consumers as well as developers required for the network to kickstart into action. WOM among developers became WOM among consumers since the two had such a high overlap.

Typically, this works best when:

1. The producers themselves are early adopters as consumers: This worked very well for Etsy as craftsmen buy from other craftsmen not just to help support fellow designers but because they often have a shared view of what they find aesthetically appealing.
2. There is a clear incentive for producers to bring in consumers: While producers would like to spread the word around to have people know about their product, structured incentives (contests, etc.) may accelerate seeding as well.

When creating a community, this is one of those questions worth a thought. If there IS a group that can satisfy both sides of your network, you might save enormous time and energy by seeding your service within that group.

 

TWEETABLE TAKEAWAYS

Chicken and egg problem: how to make a two-sided market one-sided Share this

How Etsy solved its chicken and egg problem by targeting an overlapping market  Share this

How Etsy built the network effect by targeting one single market Share this