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Blog | Innovation in Action

The Chicken and the (Digital) Egg: How to Get in on the Digital Platform Marketplace

By Marla Rosner | 09/26/2016

The Chicken and the (Digital) Egg: How to Get in on the Digital Platform Marketplace

There are two questions to ask when looking into digital platforms: how can you create a digital platform? And should you?

Digital platforms are certainly attractive: by creating a network of individuals who both create and share in a service, they allow for rapid scaling at low costs. Without a doubt, digital platforms are the future of business.

The truth is, though, not every company is ready to take that step. So to start with, let’s take a look at what it takes to launch a successful digital platform.

 

Because digital platforms connect two or more types of users—buyers and sellers, home renters and travelers, or drivers and commuters, to name some of the most popular options—the launch of a digital platform involves a chicken-or-the-egg dilemma that can be tricky to surmount. Buyers aren’t going to be interested in a platform unless it already has a base of sellers, but sellers will be equally disinterested unless there’s already a base of buyers. Neither type of user is inclined to join unless the other is already present.

Solving this paradox isn’t impossible. There are a number of ways businesses can attract the user base they need at launch.

One strategy is to build in stand-alone value, so that the platform is also useful without interactions between different types of users. For example, a platform could attract users by providing relevant information, such as maps and schedules for public transportation in a platform otherwise geared for matching drivers with commuters. This, of course, is most easily done if the data involved is publicly available.

A new digital platform can also attract users if there is a preexisting user base on another platform. A new photo-sharing app, for example, will be vastly more likely to succeed if the company behind it already has a thriving community on Instagram. As long as the needed user base already exists somewhere, transitioning it to a new platform is entirely doable.

An important takeaway here, however, is that this approach only works if the platform is intended to better serve a current customer base—not if the goal is to attract new customers. That community doesn’t exist yet, so it has to be built from square one.

 

If your company does not currently have the resources to create its own successful digital platform, there are still ways to get in on the market. You can always start by using an existing platform instead. If you want to create a photo-sharing app but don’t have a user base yet, make that Instagram account first, and build a community. This is the simplest method for easing your way into the world of digital platforms.

A more middle-of-the-road option is to work with a partner or invest in another company. This allows an organization to diversify without making huge changes to their own business model. Your company can have partial ownership of an independent digital platform, but at little risk. This is also the best option to use if you’re trying to use a digital platform to attract new customers.

So should you create your own digital platform? The answer depends on the resources your business has available and the risks you’re willing to take on. The best idea is always to start small, but keep an eye on the larger prize, so eventually you’ll be ready to brave the waters of digital platforms yourself.

Topics: Innovation, Best Practices, Strategy, Customer relationship

    

Marla Rosner

Marla is a Content Marketing Associate at Renovatio Cloud Solutions. Her aim is to cultivate a greater understanding of digital innovation and cloud-based solutions, and how they can benefit businesses and consumers. She received her undergraduate degree at the University of Texas at Austin in Plan II Honors, Linguistics, and French, and is currently finishing a master’s degree in Linguistics through the University of California San Diego. In her spare time, she enjoys travelling and reading speculative fiction.