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Failure to Launch: Critical Mass in Platform Businesses

Failure to Launch: Critical Mass in Platform Businesses Platform businesses add value by facilitating interactions between customers who are attracted in part by network externalities. Two-sided platform businesses with low costs of reversing participation status have become more important with the rise of the Internet. This essay is concerned with new businesses of this sort and the initial critical mass hurdle that they generally seem to face. In a very general model, we show how this hurdle depends on the nature of network effects, the dynamics of customer behavior, and the distribution of customer tastes. Weak, plausible assumptions about adjustment processes imply that platforms must get a sufficient number of members of both sides on board to launch successfully. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Network Economics de Gruyter

Failure to Launch: Critical Mass in Platform Businesses

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Publisher
de Gruyter
Copyright
Copyright © 2010 by the
ISSN
2194-5993
eISSN
1446-9022
DOI
10.2202/1446-9022.1256
Publisher site
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Abstract

Platform businesses add value by facilitating interactions between customers who are attracted in part by network externalities. Two-sided platform businesses with low costs of reversing participation status have become more important with the rise of the Internet. This essay is concerned with new businesses of this sort and the initial critical mass hurdle that they generally seem to face. In a very general model, we show how this hurdle depends on the nature of network effects, the dynamics of customer behavior, and the distribution of customer tastes. Weak, plausible assumptions about adjustment processes imply that platforms must get a sufficient number of members of both sides on board to launch successfully.

Journal

Review of Network Economics – de Gruyter

Published: Dec 3, 2010

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