“What got you here won’t get you there.” Career advice that works equally well in the world of online platforms.
The single factor that separates a successful platform from a failed one is the development of network effects. Most platform businesses fail because they never develop network effects. Social networks without users, content platforms without content, marketplaces without buyers and/or sellers. Platforms are very rewarding once network effects are built but equally unforgiving without.
Hence, reaching that minimum critical mass, after which users find increasing value in the platform as it grows, is critical.
A platform business focuses entirely on building this critical mass, not only in its initial days, but also going forward. The critical mass is an indication of the fact that the platform has reasonable activity to deliver value to users. A marketplace where new products are listed often and get bought often, a discussion board where there is high daily activity and retention.
The Early Adopter
To appeal to an early adopter audience, the platform needs to differentiate itself from every other failed attempt by building this activity. Subsequently, as more early adopters join, the activity increases and a positive feedback effect is built.
Early adopters tend to be tinkerers. They want to be on the next big thing and play around with it. A platform gaining momentum with activity is a signal for early adopters to join in.
However, for a platform to gain broader adoption among a mainstream audience, activity alone may not be enough.
Appealing to the mainstream
Geoffrey Moore, in his seminal work ‘Crossing The Chasm’, explains how appealing to an early adopter crowd is different from appealing to a mainstream audience. The early adopters tend to be more comfortable embracing risk while the mainstream audience tends to be more pragmatic.
Critical mass and activity/liquidity is by far the most important factor for platform success. However, activity is a necessary but not a sufficient condition for mainstream adoption.
To gain mainstream adoption, a platform has to be ‘reliable’. It should move beyond being an intriguing innovation to becoming a mechanism for reliably solving a pain point and/or delivering benefit.
How does one achieve ‘reliability’ on platforms?
A platform becomes consistently useful and reliable when it has a strong model for curation.
A few examples follow:
Why Trust rules Marketplaces
A marketplace connecting buyers and sellers needs a reliable mechanism for managing trust. This is especially true for marketplaces with high risk. AirBnB allows travelers to stay at the houses of complete strangers. Early adopters and the backpacking kind would take to such a platform if it offered significant variety and price advantages. A more mainstream audience would want to have concerns regarding safety (Is the host reliable?) and service quality (Are the pictures representative of the actual apartment?) addressed first.
As a result, AirBnB has focused on developing a strong peer-based review system, not just for hosts but also for travelers. It also, additionally, curates certain listings by sending certified photographers to take genuine pictures of the apartment.
The importance of trust varies with the category (high-risk vs. low-risk) as well as nature of transaction (remote vs. local, buy vs. hire/rent).
Why signal rules content platforms
Content platforms and social networks need to develop a high signal-to-noise ratio. While early adopters may enjoy tinkering with a new technology, a mainstream audience needs a reliable mechanism for consuming interesting content. Imagine YouTube with a poor search algorithm or without a voting mechanism to separate the good from the bad.
Some platforms like Twitter do not necessarily need curation because of the reverse chronological nature of the feed but most platforms need a reliable way of separating good content from bad for a wider audience to find it useful. A high signal-to-noise ratio ensures that users can use the platform efficiently to find what they’re looking for and be served the most appropriate content.
A reliable mechanism for curation helps platforms gain widespread adoption. More often than not, the platform owner’s focus needs to expand beyond catering to activity and liquidity alone. Building curation systems from the early days of the platform help make it more attractive for a mainstream audience as the platform grows.
To be effective, a platform needs to reach critical mass, develop the network effect and foster ongoing activity. This is where the Magnet and Toolbox roles of the platform come to the forefront.
To be efficient, a platform needs to have a strong curation system. This is enabled by the Matchmaker role of the platform.