The Chicken and Egg problem in building digital products.
Musthaq Ahamad • Jan 11, 2020
"Which came first? Was it the chicken or the egg?"
This is a known paradox we all have came across throughout our lifetime so far. Still, most of us might not have a good answer to this. This is not just a question, but a strategy problem exists in different industries and fields. Just like how we all used to blame "You need experience to get a job, but you need a job to get experience". In beautiful words, the chicken and egg problem can be described as:
"The dependency of value proposition of two separate entities on penetration into each other"
In Digital products this is a pretty common problem. Here are a few examples to get a better understanding of this
- If you don't have good product reviews, users won't buy online and if users don't buy your products, you won't have reviews.
- If you don't have apps for your platform, users won't use it. If only users are present in your platform, developers will build apps.
- If you don't have good posts on your social media platform, users won't use your platform. if you don't have users, there won't be any good posts/contents.
How to solve this?
If we look around, there are few well-known methods to solve "Chicken and Egg" strategical problem. We'll talk about some of these strategies here, which can be easily understood.
1. Bribing the chicken
Yes, you heard it right! bribing some of those chickens is one way to quickly get some eggs!
Here is a good example of bribing the chickens. Men goes to pubs to meet attractive women, and women goes to pubs to find successful men. This is clearly a chicken and egg problem. So, they simply solved it by making the entry free-of-charge for women, but charge men. In other words, bribing women to get into pubs, since it is free for them, and attract men to come join them. Result? Profit!
In digital products we have seen it everywhere. Amazon Alexa incentivizing developers with swags for building Alexa skills, so that it can attract users. Something what Trell, a social media for travelers did to attract users is to pay some initial users to post good contents related to travel and tourist destinations.
This is the easiest way of solving the problem, but it's really common. Just like how the founders of Reddit used to do when Reddit was in its initial stages. Alexis Ohanian, co-founder of Reddit had around 5-6 accounts which he used to post links and upvote the links on Reddit. Just to make sure the site looks active :)
2. Sacrificing the egg
Sacrificing the egg means, giving away the eggs so you can get the chickens. In other words, making the eggs dead cheap so that people starts buying it and it turns out to grow more chickens.
Well, if we look at how printers are being sold, we can understand this clearly. Most of the companies sell their printers for near to no profit or even at a loss. But, the profit is gained by selling the refill cartridges. More the people buy printers, more the cartridges they buy to use with the printers. If we look carefully, most of the printer cartridges are overly priced, just to overcome the sacrifice the companies made while selling the printer.
Jio, one of the biggest mobile service providers in India has done it beautifully. India had less than an average number of population with smartphones or devices which could use 4G networks. Jio made mobile phones cheaper than ever to get these users onboard and sold them 4G data packs in plenty. They even went another way of completely making the data packs free to get more users with smartphones to use their services.
3. Selling both the chicken and egg to a farmer
If two of the above solution didn't work. The final hope is to make profit by selling both the chicken and egg to a farmer who already have chickens and eggs. Confused?
Introducing the product to a market which already have both the chicken and the egg to spare can solve the problem. Here, you aren't making profit by selling chicken or egg but the idea! You have an amazing startup idea, but it has the typical chicken and egg problem. Instead of solving this problem by yourself, you sell the startup to a company who already have solved the chicken and egg problem.
If you are building a social network, selling your product to another social media company. If you are trying to build an e-commerce platform, selling your platform to another e-commerce company who already sorted their problems. This doesn't always needs to be "selling" your idea or the company, it can be just partnering with other companies who already have the users or the content to solve your "chicken and egg" problem.
Coming back to the printer problem. You find people who are in need of the both printer and its cartridge. think of them as the chicken and egg to someone who already needs it. A farmer? in our case places where the printer is most used! Selling printers to corporate offices, schools and government organizations where they are ready to pay for both the printer and its cartridges.
Considering the case of Jio too, when Jio invaded the mobile service provider market, most of the other service providers were pushed to near bankruptcy. What they did was, merge with other service providers to become one. So that there becomes more customers under a single company instead of two different ones.