CATALYST CODE: HOW TO IGNITE A PLATFORM BUSINESS AND RULE A PLATFORM-CENTRIC ECOSYSTEM

Transcription

1 CATALYST CODE: HOW TO IGNITE A PLATFORM BUSINESS AND RULE A PLATFORM-CENTRIC ECOSYSTEM David S. Evans Founder Market Platform Dynamics Visiting Professor University College London Lecturer University of Chicago 20 April 2012 Catalyst Course 2012

2 32 Catalyst Ignition: How to Ignite a Platform Business and Obtain Explosive Growth

3 YouTube Ignited in Late TABLE 1 -- YOUTUBE UNIQUE VISITORS ('000) 70, , , , , YOUTUBE Get both sides on board YouTube needed content creators and content viewers Block and tackle YouTube tried multiple strategies to increase uploading and viewing of videos 20, , Ignite Slow growth from February to December 2005 when YouTube shows an inflection point may 05 jun 05 jul 05 aug 05 sep 05 oct 05 nov 05 dec 05 jan 06 feb 06 mar 06 apr 06 may 06 jun 06 jul 06 aug 06 sep 06 oct 06 nov 06 dec 06 jan 07 feb 07 mar 07 apr 07 may 07 jun 07 jul 07 aug 07 sep 07 oct 07 nov 07 dec 07 jan 08 feb 08

4 Platforms Need Critical Mass to Ignite 34 Critical mass Critical mass refers to the minimal set of customers on each side that is large enough to attract more customers and result in sustainable positive feedback Critical mass depends on scale and balance Probability of customers from two sets getting together and exchanging value increases with the number of customers on each side Platforms implode if they can t reach critical mass If there aren t enough customers on the other side the probability of advantageous exchange falls and customers don t join and the early adopters who have eventually leave

5 Successful Platform Launch Depends on Critical Mass 35 Critical mass corresponds to a combination of scale and balance that is minimally sufficient to ignite the platform Each point reflects a combination of scale (how many customers) and balance (proportion of customer types)

6 36 Platform Ignition Requirements Reaching One of Possibly Many Combinations of Scale and Balance Based Critical Mass Points Catalytic Ignition and Critical Mass Ignition D*- Long-run equilibrium In this example the critical mass points are between C and C. O C` C* C`` Points of critical mass Movements at starting to achieve critical mass Side B C* is the point that would lead to optimal platform launch. Points to the NW of the vector 0-C and to the SW of vector 0- C would result result in platform implosion.

7 B2Bs Died Because They Didn t Get to Critical Mass No Model to Get the Right Scale and Proportion of Suppliers Points Show Supplier (X) and Buyer (Y) Combinations for B2B Exchanges (Illustrative Example) Critical mass points that could lead to ignition Most B2Bs ended up with Too few suppliers and imploded

8 Platform Ignition Has a Stopwatch 38 Limited Time for Reaching Critical Mass Early adopters have limited patience Diffusion must be rapid enough for momentum Competitors, new technology, and market changes can dose ignition Critical Time Period Depends on Type of Platform Evans s Law of Ignition Timing More time if sides can be sequenced (e.g. build up advertisers then gets readers) Less time if sides much show up simultaneously (dating clubs, exchanges, payments systems) Platforms that can t be sequenced have two years or they re toast Completely unscientific law but can t think of many that were successful with longer fuse and lots died who didn t ignite in that time

9 Platform Failures: Video Sharing Sites That Imploded (13 Largest as of February 2008) 39 Video Sharing Company Feb 04 May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 YOUTUBE.COM 900 4,230 12,669 19,089 25,471 34,413 41,035 44,894 53,521 63,921 MSN Video 5,830 5,003 8,211 9,760 10,921 9,971 14,762 11,738 12,453 16,350 15,414 13,250 15,769 14,488 14,987 13,606 13,543 Internet Broadcasting, Internet Broadcasting Systems 11,620 9,257 9,573 9,393 10,329 12,302 10,709 12,658 12,742 10,898 CSTV: College Sports TV 3,747 5,277 7,383 5,504 4,724 5,797 7,373 5,433 4,370 5,943 8,318 4,804 Yahoo! Video 21,141 22,059 19,802 20,855 23,571 6,467 3,982 EBAUMSWORLD.COM 3,654 3,086 2,947 3,166 3,926 4,365 4,394 5,047 4,453 5,316 5,069 4,280 3,363 3,408 4,894 5,224 3,489 HEAVY.COM ,927 2,087 2,970 5,589 5,480 6,208 7,518 6,840 3,391 5,241 5,758 4,349 5,092 DAILYMOTION.COM ,298 1,952 3,196 2,751 3,729 3,747 VEOH.COM ,857 3,537 3,457 3,196 ATOMFILMS.COM ,359 1,845 1,132 1,371 1,154 1,178 1,257 3,065 1,213 2,057 1,534 2,233 2,576 1,847 2,374 NICK.COM TurboNick 1,870 2,101 1,815 2,106 IFILM.COM 2,522 2,757 2,731 2,873 2,241 2,467 2,876 2,846 3,594 3,275 2,979 3,443 3,484 2,124 2,272 1,753 1,115 BRIGHTCOVE.COM ,016 1,418 1,578 1,641 2,736 No separate data available on Google Video which also imploded.

10 Foundations of an Ignition Strategy Determining Relative Prices and Value Propositions 40 Who s Needed Most and Why? What value is being provided to each side? What alternatives does each side have and what is demand elasticity? How much is each side valued by the other side?

11 MPD s Strategic Framework for Ignition TM Business Model Getting to Ignition Whose Done It These are methods that platforms have used successfully in solving coordination problems and reaching critical mass. The appropriate method depends on the economic situation of the particular platform. Sequential entry Get one side on board first, then use it to get the other side on board. OpenTable SImultaneous entry Static precommittment strategy Dynamic precommittment strategy Basic zigzag The platform is opened up right away with both sides on board, usually done when there is an obvious problem to be solved and it is simply making both sides aware of the business proposition that gets both sides to show up at the same time. Make credible commitment to each side that the other side will show up Have both sides in play by approaching one side and getting them to agree to show up if there is evidence that the other side is on board. Then, go to the other side and promise that the side they are most interested in is on board. Incremental growth. Engage in a variety of strategies to get one side and then the other to join the platform over a space of time Facebook Diners Club Xbox YouTube Marquee strategy Secure a small number of really influential players on one side or both. Mall of America Zig zag with self supply Launch platform by initially providing one side yourself. Palm Pilot Partner with another platform Developer strategy Partner with a platform that has the most critical side of your platform already on board. Create APIs and give a let developers access the platform to create value for the platform s customers Android PayPalX