Edelman, Benjamin. “How to Launch Your Digital Platform: A Playbook for Strategists.” Harvard Business Review 93, no. 4 (April 2015): 90-97. (Reprinted in Launch a Start-Up That Lasts, Harvard Business Review OnPoint, Winter 2016.)
Official abstract:
The ubiquity of Internet access has caused a sharp rise in the number of businesses offering platforms that connect users for communication or commerce. Entrepreneurs are particularly drawn to these platforms because they create significant value and have modest operating costs, and network effects protect their position once established–users rarely leave a vibrant platform. But these businesses also raise significant start-up challenges. Every platform starts out empty. Platforms need to immediately attract not only many users but also multiple types of users. For example, it’s not enough that many customers want to book taxis by smartphone. Drivers must also be willing to accept smartphone bookings. Harvard Business School professor Ben Edelman has been studying the dynamics of platform businesses and the strategies for launching them for 10 years. In this article he draws on research on dozens of platform sites and products to offer a framework for building a successful platform business. It involves asking five basic questions: (1) Can I attract a large group of users at once? (2) Can I offer stand-alone value to users? (3) How can I build credibility with customers? (4) How should I charge users? (5) Should my platform be compatible with legacy systems?
Informal introduction:
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 car-dispatch platform to have a large base of customers who want to book rides by smartphone. It also needs drivers willing to accept those bookings.
Often, a platform’s designer has a workable plan once it achieves an early critical mass of users. If a service had drivers, it could attract passengers, or vice versa. And when we look at the myriad platforms that have overcome these hurdles, it can be easy to assume solutions will present themselves. In fact success is far from guaranteed, and many startups fail at this crucial stage. In an article in next month’s Harvard Business Review, I offer strategies to guide entrepreneurs through this challenge.