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How Catalysts Ignite: The Economics of Platform-Based Start-Ups

PLATFORMS, MARKETS AND INNOVATION, A. Gawer, ed., Cheltenham, UK and Northampton, MA, US: Edward Elgar, 2009

34 Pages Posted: 7 Oct 2008  

David S. Evans

Global Economics Group; University College London

Abstract

Entrepreneurs who start multi-sided platforms must secure enough customers on both sides, and in the right proportions, to provide enough value to either group of customers and to achieve sustainable growth. In particular, these entrepreneurs must secure "critical mass" to ignite the growth of their platforms; the failure to achieve "critical mass" quickly results in the implosion of the platform. There are a number of strategies available to entrepreneurs to reach critical mass. For example, the "zig-zag" strategy involves successive accretions of customers on both sides to build up the value to both. The relevant strategies depend in large part on whether the nature of the platform requires securing participation by both platform sides at launch (e.g. dating venues), whether it is possible to acquire one side before approaching the other side (e.g. search engines), and whether it is necessary to make pre-commitments to one side to induce them to make investments (e.g. video games).

Keywords: multi-sided platforms, catalysts, start-ups, critical mass, chicken-and-egg

JEL Classification: L1, L2

Suggested Citation

Evans, David S., How Catalysts Ignite: The Economics of Platform-Based Start-Ups. PLATFORMS, MARKETS AND INNOVATION, A. Gawer, ed., Cheltenham, UK and Northampton, MA, US: Edward Elgar, 2009. Available at SSRN: https://ssrn.com/abstract=1279631

David S. Evans (Contact Author)

Global Economics Group ( email )

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Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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