Early-phase Multi-sided Platforms: Network Effects and Monetization: A Cross-industry Case Study on how Early-phase Multi-sided Platforms can Facilitate Network Effects and Monetize the Platform without Disturbing Network Growth

Abstract

Network effects have been essential to create the disruptive platform companies of our century, such as Facebook, Google, AirBnB, Amazon, Uber and Apple. The effects occur when the value of a product or service not only depends on its features – but on the network connected to it. Consequently, understanding how network effects can be facilitated and how to monetize the platform without disturbing network growth, is essential. To explore this topic further, this study conducted a cross-industry case analysis of eight Norwegian early-phase multi-sided platforms. The company sample entailed four types of platforms, categorized as asset sharing platforms, softwareas-a-service platforms, service platforms and sharing economy platforms. The insight was provided through interviews and surveys with the founders of the companies. Firstly, the study identified four key aspects to facilitate network effects: 1) creating communities to increase knowledge sharing, 2) continuously evaluate and manage the level of platform openness, 3) triggering and notifying the network to keep it active, and 4) solving the initial dilemma of which platform side to attract first (“chicken and egg problem”) by recruiting pilot-users, pre-announce the platform, create stand-alone value or utilize skills of the platform creators. Secondly, the study found several monetization strategies that allows network growth. These strategies included subsidies to one side of the platform, free trials and penetration pricing. However, in some cases an increased price was also found to be beneficial by signaling quality services.