Multi-sided platforms - how to attain critical mass?
Akseli Palomaki · Aaltodoc (Aalto University) · 2020
Businesses in various industries create value by connecting users in distinct customer groups through a platform, where the value for users stems at least partly from cross-group network effects. Multi-sided platforms may be able to grow rapidly, but only after attaining a critical mass of users that make the platform attractive for more users. In this literature review, I explain the distinctive characteristics of multi-sided platforms, examine what makes reaching critical mass an easy or difficult task, and demonstrate strategy options that platform startups can use to attain a critical mass of users. I present two models by Rochet and Tirole (2003) and Armstrong (2006) to illustrate what separates two-sided platforms from traditional one-sided businesses and to show why platform pricing tends to favor one group and harm the other. I use another theoretical framework by Evans and Schmalensee (2010) to address the critical mass problem of a two-sided platform, showing that the challenge may be easy or difficult depending on customer tastes and behavior, and pricing options. I present multiple concrete launch strategies suggested in earlier literature and discuss them in light of the theoretical findings.