The main reason platforms fail is that they don’t overcome the chicken-and-egg problem.
The platform never gets enough users on both sides of its ecosystem to create self-sustaining growth. This point is called “critical mass.” Platforms that reach critical mass overcome the negative feedback loop of the chicken-and-egg problem. The result is a virtuous cycle where the size of the platform’s existing ecosystem acts as a magnet that attracts new users.
The platforms that have reached this point are probably familiar to you. They make headlines and get stratospheric valuations. But most platforms don’t ever reach this point.
They never overcome the initial chicken and egg problem and their ecosystem eventually collapses.
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