Platform Monetization - Making money off network effects
Let’s start with the Zvents story, unless we have a better one. It ties in beautifully with the rest of the chapter and the main points we make.
Note to Karl: Link to story: http://techcrunch.com/2013/06/15/the-curse-of-the-network-effect/
Key ideas from the story:
1. Zvents grew rapidly and achieved network effects. They did everything that a platform company needs to do to get it right.
2. Both producers and consumers were happy with network effects
3. However, when Zvents wanted to monetize, they couldn’t figure a model that would work. Event organizers refused to pay to list. They even tried promoted content to enable some producers to stand out from the noise. But the value wasn’t enough for organizers to pay.
4. At the same time, they couldn’t simply charge to list as advertisers would abandon the platform leading to consumers abandoning and so on.
5. How does a platform monetize?
Only the above elements need to be included and need to be tied into the second section.
The challenges of monetizing network effects
The monetization of network effects is a unique challenge. Network effects make a platform attractive by creating a self-reinforcing feedback loop that often grows the user base without commensurate effort or investment in user acquisition. Higher value creation by producers on the platform attracts more consumption, which in turn, attract further value creation. Both production and consumption need to reinforce each other. The failure of even one of these leads to the failure of network effects. Ironically, this very dynamic makes monetization rather tricky.
Monetization can often work against the network effect since charging users can act as a deterrent that prevents them from participating on the platform. Charging access can entirely prevent participation, whereas charging usage can inhibit frequent participation. Charging producers...