Failure to launch: Critical mass in platform businesses
TL;DR
Platform businesses require critical mass on multiple sides simultaneously
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This paper analyzed why many platform businesses fail to achieve critical mass, despite having viable products. Evans and Schmalensee showed that two-sided markets require reaching quorum on both sides simultaneously - a coordination challenge that defeats many startups.
The research provides concrete guidance for platform launch strategies, emphasizing the importance of quorum-sensing mechanisms for detecting when critical mass is approaching.
Key Findings from Evans & Schmalensee (2010)
- Platform businesses require critical mass on multiple sides simultaneously
- Many viable platforms fail because they never reach critical mass
- Chicken-and-egg problem is fundamental to two-sided markets
- Strategies for reaching critical mass differ by platform type