1.

Positive network effects are crucial to the success of platform strategy because they create a
reinforcing cycle where the value of the platform increases as more users join. As more users
join a platform, it becomes more attractive to other users, leading to further adoption. This cycle
drives growth, enhances the user experience, and solidifies the platform's position in the
market. Positive network effects can lead to increased user engagement, lower costs, and higher
revenues, ultimately contributing to the platform's success and competitiveness.

2. Initiating positive network effects can be challenging due to the chicken-or-egg problem, where
the platform needs both users and providers (sellers, merchants, etc.) to create value, but each
side is dependent on the other to join. This creates a barrier to entry for new platforms and
requires strategic planning and execution to overcome. Additionally, building critical mass,
establishing trust, and offering compelling value propositions are essential for initiating positive
network effects. Without these elements, users may not see the benefit of joining the platform,
hindering its growth potential.

3. PayPal overcame the chicken-or-egg problem through several strategic moves:

a. Simplifying the sign-up process: PayPal differentiated itself by simplifying the sign-up process,
requiring only an email address and credit card information. This reduced barriers to entry for both
buyers and sellers.

b. Incentivizing user adoption: PayPal implemented incentives such as offering $10 to new users for
signing up and existing users for referrals. This incentivized user adoption and retention, driving
exponential growth.

c. Focusing on organic growth: PayPal shifted its focus to organic, viral growth through incentives rather
than traditional marketing methods. This approach stimulated demand and attracted both buyers and
sellers to the platform.

d. Targeting specific market niches: PayPal strategically targeted eBay as a natural niche for its platform,
leveraging innovative tactics such as creating bots to simulate consumer demand and insisting on using
PayPal for payments. This strategy accelerated user adoption and ultimately led to eBay's acquisition of
PayPal.

Overall, PayPal's strategic approach to simplifying sign-up processes, incentivizing adoption, targeting
specific market niches, and stimulating organic growth played a crucial role in overcoming the chicken-
or-egg problem and initiating positive network effects.