COPENHAGEN BUSINESS SCHOOL

CUSTOMER AND COMMERCIAL DEVELOPMENT

MAY 17th, 2021

EARLY-PHASE MULTI-SIDED PLATFORMS:

NETWORK EFFECTS AND MONETIZATION

A cross-industry case study on how early-phase multi-sided platforms can facilitate network
effects and monetize the platform without disturbing network growth

MASTER’S THESIS

Author
Eirik Norheim Schei
Student number: 103445

Supervisor

Carmelo Cennamo

Number of characters (standard pages): 130 157 (65)

 Abstract

Network effects have been essential to create the disruptive platform companies of our century, such
as Facebook, Google, AirBnB, Amazon, Uber and Apple. The effects occur when the value of a
product or service not only depends on its features – but on the network connected to it.
Consequently, understanding how network effects can be facilitated and how to monetize the
platform without disturbing network growth, is essential. To explore this topic further, this study
conducted a cross-industry case analysis of eight Norwegian early-phase multi-sided platforms. The
company sample entailed four types of platforms, categorized as asset sharing platforms, software-
as-a-service platforms, service platforms and sharing economy platforms. The insight was provided
through interviews and surveys with the founders of the companies.

Firstly, the study identified four key aspects to facilitate network effects: 1) creating communities to
increase knowledge sharing, 2) continuously evaluate and manage the level of platform openness,
3) triggering and notifying the network to keep it active, and 4) solving the initial dilemma of which
platform side to attract first (“chicken and egg problem”) by recruiting pilot-users, pre-announce
the platform, create stand-alone value or utilize skills of the platform creators. Secondly, the study
found several monetization strategies that allows network growth. These strategies included
subsidies to one side of the platform, free trials and penetration pricing. However, in some cases an
increased price was also found to be beneficial by signaling quality services.

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 Preface

I would like to express my gratitude to my supervisor, Carmelo Cennamo, for valuable feedback
during this last semester. Furthermore, I would like to express my sincere appreciation to the
company managers who have set aside time to share their experiences and considerations. Your
contribution has been vital to the study.

Copenhagen, May 17, 2021

Eirik Norheim Schei

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TABLE OF CONTENTS

1 INTRODUCTION 6

1.1 CONTEXT 6
1.2 RESEARCH QUESTIONS 7
1.3 LITERATURE REVIEW 8

2 THEORETICAL FOUNDATION 9

2.1 MULTI-SIDED PLATFORMS (MSPS) 9

2.1.1 ARCHITECTURE 9
2.1.2 PIPELINES VERSUS MULTI-SIDED PLATFORMS 13
2.2 NETWORK EFFECTS 16
2.2.1 TWO-SIDED NETWORK EFFECTS 17
2.2.2 SCALING AND CURATION 18
2.2.3 WINNER TAKES ALL 19
2.2.4 CHICKEN AND EGG PROBLEM 20
2.3 MONETIZATION 22

3 METHODOLOGY 26

3.1 LITERATURE REVIEW 26

3.2 RESEARCH APPROACH 27
3.3 RESEARCH DESIGN 28
3.4 INTERVIEWS 29
3.4.1 CRITERIA 29
3.4.2 RECRUITING 30
3.4.3 COMPANIES AGREEING TO INTERVIEWS 30
3.4.4 INTERVIEWING 34
3.4.5 SURVEYS 35
3.5 DATA ANALYSIS 35
3.5.1 TRANSCRIPTION 35
3.5.2 THEMATIC ANALYSIS 36
3.6 EVALUATION OF METHOD 38
3.6.1 RELIABILITY 38
3.6.2 VALIDITY (INTERNAL) 38
3.6.3 VALIDITY (EXTERNAL) 38
3.6.4 CONFIRMABILITY (OBJECTIVITY) 39
3.6.5 LIMITATIONS AND ASSUMPTIONS 39

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4 FINDINGS 40

4.1 FACILITATING NETWORK EFFECTS 40

4.1.1 MANAGER INITIATIVES 40
4.1.2 NETWORK ACTIVITY 46
4.1.3 SOLVING THE CHICKEN AND EGG PROBLEM 48
4.2 MONETIZATION 50
4.2.1 SUBSIDIES AND PENETRATION PRICING 50
4.2.2 FREE TRIALS 51
4.2.3 NO DISCOUNTS 52

5 DISCUSSION 54

5.1 “HOW CAN EARLY-PHASE MULTI-SIDED PLATFORMS FACILITATE AND SUSTAIN NETWORK EFFECTS?” 54
5.1.1 COMMUNITY 54
5.1.2 OPENNESS 55
5.1.3 NETWORK ACTIVITY 57
5.1.4 CHICKEN AND EGG PROBLEM 58
5.1.5 CONTRIBUTION 60
5.2 RQ 2: HOW CAN MULTI-SIDED PLATFORMS BE MONETIZED WITHOUT DISTURBING NETWORK GROWTH? 61
5.2.1 DISCOUNTS 61
5.2.2 FREE TRIALS AND FREEMIUM MODEL 62
5.2.3 CONTRIBUTION 63

6 CONCLUSION 64

6.1 FURTHER RESEARCH 65

7 BIBLIOGRAPHY 66

8 APPENDIX 73

8.1 APPENDIX A: INTERVIEW GUIDE TEMPLATE 73

8.2 APPENDIX B: CONSENT TO THE PROCESSING OF PERSONAL DATA 77
8.3 APPENDIX C: SURVEY 85
8.3.1 STATEMENTS 85
8.3.2 QUESTIONS 88
8.4 APPENDIX D: COMPANIES CONTACTED 89

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LIST OF TABLES AND FIGURES

TABLE 1: MANAGING AND SPONSORING PLATFORMS (EISENMANN ET AL., 2009, P. 136) 11

TABLE 2: INDUSTRIES TRANSFORMED BY PLATFORM BUSINESSES (PARKER ET AL., 2016, P. 13) 15
TABLE 3: SUBSIDIES TWO-SIDED MARKETS (ADAPTED FROM PARKER & VAN ALSTYNE, 2005, P. 1495) 23
TABLE 4: LITERATURE REVIEW: MAIN CONTRIBUTION AND METHOD 27
TABLE 5: CASE COMPANIES: SELECTION CRITERIA 29
TABLE 6: SAMPLE OF CASE COMPANIES 33
TABLE 7: CASE COMPANIES: COMMUNICATION CHANNELS 35
TABLE 8: FINDINGS: INITIATIVES TO INCREASE NETWORK EFFECTS 40
TABLE 9: FINDINGS: STRATEGIES TO ACTIVATE NETWORK 46
TABLE 10: FINDINGS: STRATEGIES TO OVERCOME THE CHICKEN AND EGG PROBLEM 48
TABLE 11: FINDINGS: PRICING STRATEGIES TO INCREASE NETWORK 50

FIGURE 1: TYPES AND EXAMPLES OF MSPS (UENLUE, 2017) 6

FIGURE 2: PLATFORM ARCHITECTURE (BORROWED AND BUILDING ON: VAN ALSTYNE ET AL., 2016) 12
FIGURE 3: NETWORK EFFECTS (JOHNSON, 2019) 16
FIGURE 4: TYPES OF NETWORK EFFECTS (BUIKSTRA, KORTMANN, KLAASSEN, ROOK, & VERBRAECK, 2015) 18
FIGURE 5: COST-PER-UNIT CURVE. LINEAR BUSINESS VS PLATFORM BUSINESS (JOHNSON, 2019) 25
FIGURE 6: ABDUCTIVE REASONING (DUBOIS & GADDE, 2002, P. 555) 28
FIGURE 7: SCREENSHOT LIGRESOFTWARE. IN-VIVO CODING. 37
FIGURE 8: SCREENSHOT LIGRESOFTWARE. A PRIORI CODING. 37
FIGURE 9: OPINION SCALE; AWARENESS OF NETWORK EFFECTS 44
FIGURE 10: OPINION SCALE: LOW PRICES AND NETWORK EFFECTS 53

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1 INTRODUCTION

The purpose of this chapter is to provide an introduction to multi-sided platforms, network effects
and monetization – in order to propose the research questions of the study. Lastly, this chapter
presents a literature review of previous studies to summarize their main focus and findings
regarding network effects and monetization for MSPs.

1.1 CONTEXT

Multi-sided platforms (hereafter; MSPs) facilitates interaction between two or more user groups
(Evans & Schmalensee, 2013). It is likely that these platforms have changed your way of every-day
life as an employee, a consumer or a citizen. Using Amazon to shop, Microsoft at work, Facebook to
connect, Uber to transport or AirBnB on vacation. Today, 5 of the world’s 6 most valuable companies
by market capitalization, Apple, Microsoft, Amazon, Google and Facebook (CompaniesMarketCap,
2021), operate platforms that matches two or more user sides. Uber challanged or replaced the
traditional taxi business in more than 200 globas citites just five years after their launch – without
owning a single car. Retailing giant Alibaba features approximately a billion different product on
just one of its many business portals – without owning a single item of inventory. The disruptive
power is enabled by the platform business model enabling technology to connect organizations,
resources and people to create remarkable amounts of value (Parker et al., 2016, p. 2). Accordingly,
numerous types of MSPs exists:

Figure 1: Types and examples of MSPs (Uenlue, 2017)

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With the rise of platforms follows a new source of competitive advantage: network effects. Positive
network effects arises when a growing user base increases the platform value for each user (McIntyre
& Subramaniam, 2009). To illustrate: More riders on Uber, means less downtime and more income
for drivers. Oppositely, more drivers on Uber, means faster pick-ups and cheaper rides for riders
(Parker et al., 2016, p. 18). Network effects differentiates MSPs from traditional companies as the
value of a product depends on the network connected to it – not only features of the product (Briel
& Davidsson, 2019).

The competitive force of network effects makes monetization one of the most difficult issues any
platform company has to address (Eisenmann, Parker, & Van Alstyne, 2006). Monetization refers to
the ability to generate financial wealth from the value creation a company creates (Skilton, 2015).
For MSPs, this includes a pricing strategy that takes two or more user groups into account.
Additionally, the relationship between the user groups plays a significant role (Parker et al., 2016).
Therefore, platforms must choose a price structure and not only a price level for their service (Rochet
& Tirole, 2003, p. 990), which often makes monetization of MSPs a challenging task to excel.

1.2 RESEARCH QUESTIONS

To narrow down the scope of the study, the focus is limited to early-phase multi-sided platforms
established by Norwegian founders. Based on the presented context, the thesis mainly seeks to
understand more about facilitation of network effects. Secondly, the thesis seeks to gain knowledge
as to how MSPs can be monetized in a way that does not hinder network growth. Accordingly, the
following research questions are formulated:

RQ1: How can early-phase multi-sided platforms facilitate and sustain network effects?

RQ 2: How can early-phase multi-sided platforms be monetized without disturbing

network growth?

Findings and discussion related to the two research questions will be reviewed and answered
separately, with the main focus of the study being the first research question. A cross industry multi-
case analysis was completed to answer the two research questions. The data was gathered through
interviews and surveys with founders of eight companies. By using the framework from Figure 1,
this study focuses on four types of MSPs: asset sharing platforms, development platforms (also
known as software-as-a-service platforms), service platforms and sharing economy platforms –
operating in the industries of education, retail, graphic design, rental, transportation and
recruitment.

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1.3 LITERATURE REVIEW

With the rise of the disruptive platforms and their advantage of network effects, followed extensive
literature about it. The book Platform Revolution (Parker, Van Alstyne & Choudary, 2016) describes
how many of the largest companies today are enabled by the power of network effects with
extensive case examples. The book also explains the difference between cross-side – and same-side
network effects. Furthermore, the authors emphasize how scaling of network effects are important
but entails the threat of negative network effects. Previous literature also stresses that a network has
to be active to facilitate network effects (Song, Xue, Rai, & Zhang, 2018). Other studies have
researched competitetion in network industries (Farrel & Klemperer, 2007) and how these markets
often have one company dominating the enitre market, also known as the winner-take-all-effect (Sun
& Tse, 2007; Eisenmann et al. 2006). Importantly, McIntyre & Srinivasan (2017) claims that previous
studies often assume the presence of network effects and consequently tend to exclude manager
initiatives and strategies to drive network effects. There are examples of nascent research addressing
this gap by having a stratetic and firm oriented approach to network effects (Schilling, 2002;
Fuentelsaz, Garrido, & Maicas, 2015; Bhargava, 2014; ). Nevertheless, much still remain to be known
about how platform managers can facilitate for network effects.

As stated, monetization of MSPs is a complex task. Accordingly, there is also extensive literature
about monetization. Rysman (2009) and Rochet & Tirole (2003) emphasizes that the pricing strategy
depends on the joint set of demand elasticities on both user sides. Therefore, the overreaching
consensus from previous literature is that MSPs often necessitates a monetization strategy that has
differential pricing of the user groups (Evans, 2003). This entails that MSP managers have to consider
charging different prices for the same good, also known as price discrimination. This approach can
attract a larger user group due to the low prices, which in turn grows the other user side with normal
prices – due to the dependency of the platform user sides (Rysman, 2009). One way of price
discriminating is to use subsidies, which is acknowledged as an important monetization approach
to grow the network (Parker & Van Alstyne 2005; Eisenmann et al., 2006 & Rysman 2009.) In line
with this reasoning, is the claim that a firm can rationally invest in a product it intends to give away
for free (Parker & Van Alstyne, 2005). Furthermore, Eisenmann et al. (2006) stresses that the
subsidized users should be those who are quality- and price sensitive. Differential pricing also
entails a monetization approach that secures especially important users (called marquee users)
exclusive participation on the platform through favorable deals or pricing. These marquee users can
in turn accelerate platform activity (Eisenmann et al. 2006). Additionally, the monetization
approaches for MSPs are dynamic. This can result in a monetization approach that applies
penetration pricing, which means that prices are lowered in the beginning of its life cycle and then
raised after establishing a larger user base (Evans, 2003).

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2 THEORETICAL FOUNDATION

This chapter presents relevant theory and definitions regarding three main topics: 1) MSPs, 2)
network effects and 3) monetization of MSPs. This chapter functions as a foundation to the later
findings and to understand the discussion regarding network effects and monetization.

Initially it is essential to explain the architecture of MSPs to understand how network effects can
occur and to recognize the different platform users the platform has to monetize. This part also
compares MSPs to traditional pipeline businesses to illustrate the disruptive powers of network
effects. Essentially, it is crucial to understand how MSPs work before explaining network effect and
monetization strategies further. Next, part 2.2 defines the different types of network effects and
mechanism to facilitate them. Furthermore, the importance of solving the chicken and egg to create
network effects are discussed. Thirdly, the aspects regarding monetization of MSPs are presented.

2.1 MULTI-SIDED PLATFORMS (MSPS)

MSPs are businesses based on enabling value-crating interactions between external producers and
consumers. According to Hagiu & Wright (2015, p. 5) MSPs have two fundamental features: 1) they
enable direct interactions between two or more distinct sides, and 2) each side is affiliated with the
platform. This means that users on each side consciously make platform-specific investments that
are necessary in order for them to directly interact with each other. The overarching purpose is to
consummate matches among users and facilitate the exchange of goods, services, or social currency
– thereby enabling value creation for all participants by providing a real or virtual meeting place
(Evans & Schmalensee, 2008; Parker et al., 2016). Gawer and Henderson (2007) describes MSPs as
building blocks that serve as the foundation for complementary products and services.
Consequently, the infrastructure of MSPs must support an ecosystem where market adoption on
one side influences and depends on the desirability of adoption on the other side (Bhargava, 2014).
Previous literature often uses the term MSP interchangeably with other terms such as multi-sided
markets, platform-based markets and marketplaces. This study excludes a distinction between a
two-sided platform (two groups of users) and a multi-sided platform (two or more groups of users).

2.1.1 ARCHITECTURE

The architecture is essential to address since it enables the exchanges necessary to establish network
effects. Furthermore, the architecture provides an overview of the different user that platforms have
to monetize. Therefore, this part will describe the exchange flows, level of openness and the value
filter.

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MSPs essentially act as intermediaries between two or more groups and create efficiencies by
lowering transactions costs (Evans & Schmalensee, 2008). In every such exchange, the producer and
the consumer exchange three things: information, goods or services, and some form of currency
(Parker et al., 2016, pp. 37-39):

1) Exchange of information: Every platform interaction starts with the exchange of information.
Thus, every platform business must be designed to facilitate the exchange of information. For
example, Uber provides information about driver availability and location in response to passenger
requests.

2) Exchange of goods or services: As a result of the information exchange, the participants of the
platform may decide to exchange valuable goods or services as well; On Facebook, photos, links and
status updates are exchanged. And on YouTube, videos are exchanged.

3) Exchange of currency. The exchange of goods and services are typically paid for using some form
of currency. In many cases, this entails traditional money currency transmitted via credit card data.
However, attention, fame, reputation and other intangible forms of value can play the role of
currency on a platform. To exemplify, consumers on YouTube “pay” with their attention by viewing
videos.

Ultimately, the goal of the platform is to bring together producer and consumers and enable them
to engage in these three forms of exchange. The platform’s infrastructure provides tools and rules to
make exchanges easy and mutually rewarding. The two core groups, producers and consumers, are
often referred to as demand- and supply-side. Typically, demand-side participants receive a form of
service provided by the supply-side participants. In return, the supply side regularly receives some
other value (often monetary) provided by demand-side participants. On MSPs a potential third part
is often called complementors which complement services. To use YouTube as an example (Figure
2): The creators of the videos are the supply-side and the viewers of the videos are the demand-side.
Here, the advertisers are the complementors and complement the value of the viewer attention
provided by the demand-side, by creating monetary value of ad views (Veisdal, 2020, p. 541).

OPENNESS

The decision of openness greatly effects network effects, by leveraging the level of participation. It
also relates closely to monetization by determining how many sets of users the platform has to
potentially charge. A platform is “open” to the extent that a) no restrictions are placed on
participation in its development, commercialization, or use or b) any restrictions are applied
uniformly to all potential platform participants (Eisenmann et al., 2009, p. 131). Calibrating the right

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level of openness is one the most important and complex decisions a platform business must make
(Hagiu & Lee, 2011). The case of Myspace is optimal to exemplify a platform that were too closed to
external development. Myspace was the dominant social network before Facebook was launched in
2004 and remained so until 2008. However, the platform had limited engineering resource and had
features that often were buggy. The platform decided to be closed to outside developers that could
fix the bugs (Gillette, 2011). On the other hand, Facebook opened up to dot-com users in 2006 and
developers in 2007, which dramatically helped the climb toward competing with Myspace.
Borrowing from Eisenmann et al. (2009, p. 136) openness of a platform can be categorized into four
models based on how many firms that are involved in platform management and platform
sponsorship (Table 2). In general terms, platform management entails organization and controlling
of producer and consumer interactions. Whereas platform sponsors control the overall architecture
and technology of the platform.

Why provides the platform? (Platform management)

One Firm Many Firms

Who Proprietary Model Licensing Model

controls - Macintosh - Google Android
One - PlayStation - Microsoft Windows
platform Firm
technology?

(Platform Many Joint Venture Model Shared Model

sponsor) Firms - Career Builder (created - Linux
by three newspaper - DVD
groups)
- Orbitz (created by
several major airlines)

Table 1: Managing and sponsoring platforms (Eisenmann et al., 2009, p. 136)

Macintosh is an example of the Proprietary Model, where a single firm both manages and sponsors
the platform. Here, the hardware, software, and underlying technical standards for the operating
system are controlled by Apple. Next, Google Android is an example of the Licensing Model. Google
is the one firm controlling and sponsoring the technology. However, Google encourages several
companies such as Amazon, Samsung and Sony to contribute as platform managers by developing
the interface between producers and consumers. CareerBuilder exemplifies the Joint Venture Model.
The company is created and controlled by several sponsors (three newspaper groups) and

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importantly, only CareerBuilder manages the platform. Lastly, Linux operates a Shared Model. There
are both several sponsors and several managers of the open-source Linux operating system. The
platform managers entail companies such as Rooma, Ubuntu and Qualcoom. Whereas IBM, Intel
and Samsung are examples of corporate sponsors of Linux (Eisenmann et al., 2009, pp. 135-137).

Figure 2 illustrates the platform roles discussed hitherto; producers, consumers, complementors,
platforms sponsors and platform managers. Thereby giving an overview of potential sides a MSP
has to monetize, and the value flows enabling network effects.

Creators of Buyers or users of

platform’s offerings offerings (viewers
(videos on on YouTube
YouTube)

Platform manager

Platform sponsor
COMPLEMENTORS
(Advertisers on
YouTube)

Figure 2: Platform Architecture (Borrowed and building on: Van Alstyne et al., 2016)

CORE INTERACTION

Parker et al. (2016, p. 38) claims that the core interaction is the single most important form of activity
on a platform as it enables the value creation between producers and consumers. Consequently, the
core interaction directly enables network effects. The core interaction involves three key
components: the participants, the value unit and the filter (Parker et al., 2016, pp. 38- 42).

Participants + Value Unit + Filter à Core Interaction

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Participants: The participants are fundamentally two types: the producer crating value and the
consumer consuming value. Well-designed platforms make it easy for participants to move from
role to role. One participant can be both a host and a guest on AirBnB, and one participant may
upload videos and view them on YouTube.

The value unit: In almost every case, the creation of the value unit by producers starts the core
interaction. Tweets on Twitter, videos on YouTube and available cars on Uber are all examples of
value units.

The filter: The value unit is delivered to consumers based on the filters, which is an algorithmic,
software-based tool used to enable the exchange. A typical filter is a search query, where
participants for example search for “hotels near city center, Copenhagen” on Hotels.com. Of the
perhaps millions of value units created by producers (hotel proprietors), the platform uses the
filter to select units that matches the participant.

According to Parker et al. (2016, p.41), the most important task when designing a platform, is to
decide what the core interaction will be. Then, define participants, value units and filters to make
that core interactions possible.

2.1.2 PIPELINES VERSUS MULTI-SIDED PLATFORMS

The traditional system employed by most businesses is described as pipelines, with value moving
from left to right. To the left is cost, and to the right is revenue. The producers are at one end and
consumers at the other, with the creation and transferring of value following a step-by-step
arrangement. Therefore, pipelines are also knowns as linear value chains. In the shift from the
pipeline arrangement to platform structure, the linear value chain is transformed into a complex
relationship in which producers, consumers and the platform itself enter into a variable set of
relationships. This means that rather than flowing in a straight line from producers to consumers –
value may be exchanged and consumed in a variety of ways and places. The cost and revenue are
now both to the left and the right, due to distinct user groups on each side of the platform (Parker et
al., 2016; Eisenmann et al., 2006). Amazon exemplifies a traditional pipeline company transforming
to a platform business over time. Initially, Amazon was a pure retailer but over time the company
has enabled third-party sellers to trade directly with consumers on their website. Several service
firms are also moving away from the traditional step-by-step pipeline architecture, by enabling
contractors or professionals to deal directly with clients. One example are taxi firms providing a map
of available taxies, an interactive taxi map and direct booking opportunities (Hagiu & Wright, 2015).

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DEMAND ECONOMIES OF SCALE

Network effects arise when a bigger network creates more value to the users. This dynamic enables
an important distinctive feature of MSPs, which is demand economies of scale. In the twentieth-
century industrial era, giant monopolies were created based on supply economies of scales. As the
quantities produces increased, the unit cost of creating a product or service were reduced due to
production efficacies. Thus, supply economies of scale often give the largest companies a cost
advantage that is very difficult for competitors to overcome. However, in today’s internet era–
comparable monopolies are being created by demand economies of scale (Shapiro & Varian, 1999).
By contrast with supply economies of scale, demand economies of scale take advantage of
technological improvements on the demand side. Demand economies of scale are driven by
efficiencies in social networks, demand aggregation, app development, and other phenomena that
make bigger network more valuable to their users (Parker et al., 2016, p. 19).

STRUCTURAL IMPACTS OF MSPS

Parker et al. (2016, pp. 69-73) defines three main ways in which the rise of platform businesses is
transforming the traditional structure:

De-linking assets from value: Companies de-link the ownership of the physical asset from the value
it creates. This means that assets are not restricted to uses specific to the owner but can be traded
and applied to the use that created the greatest economic value. To exemplify, de-linking assets from
value allows expensive health care equipment (i.e., MRI machines) to be used more efficiently.
Instead of a single hospital using 40-50 percent of the machine’s capacity, the machines could instead
be shared with smaller clinics that cannot afford own machines. Thus, de-linking assets from value
increases the revenue for the machine’s owner.

Re-intermediation: Re-intermediation entails replacing non-scalable and inefficient agent

intermediaries with online, often automated tools and systems that offer valuable new goods and
services to participant on both sides of the platform. To exemplify, music agents who previously
associated themselves with a large record label when looking for talents, now scout for talents on
platforms such as YouTube and SoundCloud.

Market aggregation: The platforms provide centralized markets to serve widely dispersed
individuals and organizations. Amazon Marketplace is one example of a market aggregation
function providing easier and cheaper decision-making for consumers.

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 Industry Examples

Communication and networking LinkedIn, Facebook, Twitter, Snapchat

Education Skillshare, Duolingo, Udemy

Finance Bitcoin, Lending Club, Kickstarter

Labor and professional services Upwork, Fiverr, SitterCity

Local Services Yelp, Foursquare, Groupon

Logistics and Delivery Wolt, Foodora, JustEat

Retail Amazon, Alibaba, eBay

Transportation Uber, ShareNow, Lyft

Operating Systems iOs, Anroid, MacOS, Microsoft Windows

Table 2: Industries transformed by platform businesses (Parker et al., 2016, p. 13)

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2.2 NETWORK EFFECTS

The following literature contributes to understand why monetization is challenging by illustrating

how dependent each side is on each other due to the network effects. According to Parker et al.
(2016, p. 17) network effects are the main source of value creation and competitive advantage in a
platform business. The effects refer to the impact that the number of users of a platform has on the
value crated for each user. It is a distinctive feature of a MSP, occurring when the usage growth of
one side increases the value for the other side (Rochet & Tirole, 2003; Evans, 2003). Thus, the value
of the platform to its users depends not only on features and functionality but increases with number
of other users – and the interactions among them (Briel & Davidsson, 2019, p. 1).The phone can be
used to simply exemplify network effects. The phone is only useful if the people you need to
communicate with, also have phones. Hence, the more people that have phones – the more useful it
is to have one yourself.

Figure 3: Network effects (Johnson, 2019)

Economists often refer to this dynamic as network externalities or Metcalfe’s law. This means that
the value of adding another user to a platform dramatically increases its potential value to every
other user (Shapiro & Varian, 1999). The value of the system increases almost exponentially rather
than linearly, as each additional user potentially increases the value of the system to other users
intensely rather than gradually. Once such network effects are triggered, the platform can enter a
self-reinforcing loop (Johnson, 2019). Network effects created the giants of our century: Google and
Facebook already in 2016 touched more than one-seventh of the world’s population (Parker et al.,
2016, p. 33). Network effects allows higher value creation by producers on the platform, which
attracts more consumers who in turn attract more producers and further value creation. Yet,
ironically, this powerfully positive growth dynamic makes monetization very tricky. Parker et al.

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(2016, p.107) emphasizes how any charge levied on users is likely to discourage them from
participating on the platform – creating a monetization challenge.

2.2.1 TWO-SIDED NETWORK EFFECTS

The example of the phone illustrates the power of network effects with one side of the market.
However, on MSPs where two or more sides of the market are involved, two-sided network effects
occur: On PayPal, sellers attract buyers, and buyers attract sellers. And on AirBnB, hosts attract
guests, and guest attracts hosts. Two-sided network effects dominate MSPs in the 21st century
(Parker & Van Alstyne, 2005). MSPs can fundamentally achieve two types of network effects: same-
side (also known as direct) and cross-side (also known as indirect) network effects. Furthermore, the
two types can be positive or negative (Boudreau & Jeppesen, 2014; Parker, Alstyne, & Choudary,
2016).

POSITIVE AND NEGATIVE

Positive network effects refer to the ability of a large, well-managed platform community to produce
significant value for each user of the platform. Whereas negative network effects refer to the
possibility that the growth in numbers of a poorly managed platform community can reduce the
value produced for each user (Boudreau & Jeppesen, 2014).

SAME-SIDE AND CROSS-SIDE

Same-side network effects are created when users on the same side of the platform create value for
each other (Tiwana, 2013). One example of positive same-side effects is PlayStation’s online gaming
platform. The more fellow gamers on the platform, the greater experience when using it. Oppositely,
Chatroulette is a platform that experienced negative same-side network effects due to bad curation.
Initially, the platform that randomly paired two parts to video chat, had no registration
requirements or controls of any kind. This led to what became knowns as the Naked Hairy Men
problem. A growing number of naked men showed up to chat and legitimate users fled from
Chatroulette (Parker et al., 2016). The platform noise increased, and negative network effects
occurred between users on the same side (consumers).

Cross-side effects are network effects created by the impact of users from one side of the market to
users from the other side of the market (Tiwana, 2013). Uber is a classic example of positive cross-
side network effects. More riders and drivers, means that wait time falls for riders and downtime
falls for drivers. Less downtime means that uber can cut fares and stimulate even more demand. A
potential example of negative cross-side effects is if Uber attract too many drivers relative to the
number of riders, as this leads more waiting for the riders (Boudreau & Jeppesen, 2014).

17
 MSP

Figure 4: Types of Network Effects (Buikstra, Kortmann, Klaassen, Rook, & Verbraeck, 2015)

It is not only important to attract users to benefit from network effects – but also to keep them active.
A fundamental assumption underlying network effects is that active users participating in platform
on an ongoing basis will increase the value. In order to achieve this the platform needs to facilitate
interactions between the users (Song et al., 2018, Parker et al., 2016).

2.2.2 SCALING AND CURATION

Network effects bring up the matter of MSPs balancing the scaling of the network. Frictionless entry
refers to the ability of users to easily join and participate in the value creation a platform facilitates
and is important in order to scale the network. However, the platform must be curated in order to
keep control and have a proportional growth of the user sides (Boudreau & Hagiu, 2009). Curation
refers to the process of controlling and limiting the access of a platform. Bad curation and too much
participation can lead to lower quality of matching and negative network effects. Thus, balancing
the two is an ongoing and important challenge for MSPs (Van Alstyne et al., 2016). The case of Yahoo
exemplifies the importance of being able to scale both sides of a platform. As the Internet use in the

18
1990s increased exponentially1 – it became apparent that the employee-edited hierarchical databases
of Yahoo did not scale well. By contrast, Google’s algorithm effectively matched both sides of the
network, by having a page rank algorithm that considers the extent to which web pages link to
another. Therefore, Google created a platform far more scalable than Yahoo’s (Parker et al., 2016, p.
25).

2.2.3 WINNER TAKES ALL

A phenomenon in markets where network effects are present, is that in some of them, the winner
take the entire market – the so-called winner takes all effect (Sun & Tse, 2007). Eisenmann et al. (2006)
found that one company is likely to take the whole market if three conditions apply: 1) multi-homing
costs are high for at least one user side, 2) network effects are positive and strong— at least for the
users on the side of the network with high multi-homing costs, and 3) neither side’s users have a
strong preference for special features. Firstly, these conditions call for an explanation of multi-
homing costs. These costs relate to all expenses network users experience to establish and sustain
platform connection. Therefore, multi-homing cost for the PC market is high, since using multiple
systems is expensive in terms of extra hardware, software and adaption (Eisenmann et al., 2006, p.
7). Secondly, strong network effects contributes because it attracts more users to whichever platform
is larger. Thirdly, a set of users with distinctive needs can support a separate network and weaken
the winner takes all effect. Thus, a lack of strong preferences increases the probability of dominant
companies (Parker et al., 2016, p. 224).

The DVD industry meet the three conditions above. First, it is expensive to buy multiple DVD-
players. In other words, multi-homing costs are high. Second, cross-side network effects are strong
for both sides: viewers value a broader selection of movies, and movie studios can scale when the
number of costumers increase. Lastly, strong preferences are limited since the players are
standardized to connect and work with TV sets (Eisenmann et al., 2006, p. 8). Examples of other
markets with winner takes all dynamics are typewriter keyboards and web browsers. Whereas TV
networks and newspapers are markets where the effects are not present. Accordingly, switching
newspaper and TV network entails minimal multi-homing costs (Sun & Tse, 2007).

1
http://data.un.org/Host.aspx?Content=Tools

19
2.2.4 CHICKEN AND EGG PROBLEM

When trying to build a multi-sided platform in which both or all sides are equally essential, which
comes first? And how do you attract one without the other? This is an initial challenge when
establishing MSPs called the chicken and egg problem, and a vital challenge to overcome in order
to facilitate network effects (Hagiu, 2006). The nature of MSPs implies that the uncertainty about the
usefulness of the platform to one side, depends on the participation of the other side with
complementary interests (Halaburda & Yahezkel, 2013; Caillaud & Jullien, 2003).

Overcoming this challenge has implications for the monetization approach of the MSPs. Not only
do companies subsidize users to attract an initial user base, but they also spend money to attract
participants to one side of the market – knowing that if they get one side to join the platform, the
other side will follow. This explains why Uber investors can afford to use millions of dollars to give
away free rides in order to create an installed user base (Bhargava, 2014; Parker et al., 2016).
Choudary (2016) has identified eight possible strategies to get around the chicken or egg problem.

1. The follow-the-rabbit strategy: This strategy entails building a platform business on the
foundation of an existing pipeline or product business. Thus, attracting both sides to a new platform,
and simply avoiding the chicken and egg problem. Amazon used this strategy by opening its system
to external producers, resulting in Amazon Marketplace.

2. The piggyback strategy: Connect with a user base from an existing platform and create value to
recruit those users to your platform. The transaction platform PayPal used this strategy when the
company piggybacked of eBay’s online auction platform.

3. The seeding strategy: Targets one side of the platform, by creating relevant value units for one
set of potential users. When one side of users are attracted, another set of users wanting to engage
with them, will follow. Google used this strategy when they launched its Android smartphone, by
offering a 5-million-dollar prize to the developers that created the bast apps. Thus, attracting
producers which in turn attracted consumers using the apps.

4. The marquee strategy: Focuses on recruiting a key user set onto the platform, who will make the
platform attractive to “regular” consumers. Recruiting key users could for example be done through
especially favorable partnerships with important software producers or famous celebrities.

5. The single-side strategy: Create a product that benefits a single set of users. Then, later evolve to
a multi-sided platform by attracting users wanting to interact with the original set of users. RedBus
used this strategy by providing a seating management system to bus operators. Subsequently, they
opened the platform to consumers that could book seats through the software.

20
6. The producer evangelism strategy: As the name entails, this strategy implies a platform design
that attract producers. Consequently, costumers are also attracted to the platform. The education
platform Skillshare applied this strategy by signing up influential teachers, allowing them to easily
host online courses and thus getting students on board as well.

7. The big-bang adoption strategy: Uses one or several traditional push marketing strategies to
establish interest and attention. Twitter created a by big-bang by investing $11.000 to install giant
flat-panel screens on a tech festival in 2007. This created attention as users could text a tweet to a
SMS short number and find their tweet on the screen.

8. The micromarket strategy: Targets a tiny part of the market that already engage in interactions.
A part of Facebook’s success was to use this strategy. The platform launched in the closed
community of Harvard University. By doing this, Facebook leveraged an existing micromarket and
gained traction by later improving the quality of interactions.

21
2.3 MONETIZATION

Monetization of digital platforms refers to the ability to generate financial wealth through strategies
and methods to convert skills, relationships, intelligence, assets, products, and services into
monetary value (Skilton, 2015, p. 7). The pricing models of MSPs can be categorized as abnormal,
as it involves two or more sides. This includes dealing with the issue of whether and how much the
different sides should be charged (Evans , 2003). Pricing in two-sided markets is challenging because
one side of the market depends not only on the demand and costs that those consumers bring – but
also on how their participation affects participation on the other side and the profit that is extracted
from that participation. Thus, in a two-sided market, platform providers have to choose a price for
each side, factoring in the impact on the other side’s growth and willingness to pay. Whereas one-
sided markets rely on the more traditional price-cost mark-up (Rysman, 2009; Eisenmann et al.,
2006). Ultimately, under multisidedness, platforms must choose a price structure and not only a
price level for their service (Rochet & Tirole, 2003, p. 990). Borrowing from Evans & Schmalensee
(2008, p. 675) three pricing features appear to be true for MSPs:

1. The optimal prices depend in a complex way on the price sensitivity of demand on both sides.
This entails the intensity of the cross-side network effects between the two sides, and the marginal
costs that result from changing output of each side.

2. The profit-maximizing price for either side may be below the marginal cost of supply for that side
or even negative.

3. The relationship between price and cost is complex and the simple formulas that have been
derived for single-sided markets do not apply.

The characteristics of MSPs often make subsidies a particularly appropriate pricing strategy to
attracts users. This entails that the price can be discounted or zero for one side of the platform and
the profit is made only on the other side (Rochet & Tirole, 2003, Bhargava , 2014). It can be temporary
penetration prices or permanent discounts or take form as free information which has zero marginal
cost (Parker & Van Alstyne, 2005; Rysman, 2009). Therefore, multi-sided platforms often have what
you call a “subsidy side”. This side, when attracted in volume, are highly valued by the other user
group – the “money side”. Consequently, the size of the subsidy side is important in developing
strong network effects, and the prices for that side are set below a price level it would charge for the
same user group in an independent market (absence of network effects). Accordingly, if the subsidy
user group is big enough, the money side will pay more than they would in an independent market.
Thus, the different side are attracted and dependent by one another. That is why cross-side network
effects are so important to monetization strategies. It is also why it is challenging to figure out how

22
much one side should be encouraged through subsides and how much the money side should pay
for the privilege of gaining access to it. Logically, the subsidized side if often the most price-sensitive
users (Eisenmann et al., 2006).

Subsidies also entails freemium models, where some content is free while other content is not
(premium). For both cross-side network effects and same- network effects side, the fundamental
idea is that this monetization strategy allows the platform to target highly price-sensitive consumers
(free version) and the more quality-sensitive (premium version) segment of the market (Bhargava &
Choudhary, 2004; Jing, 2007). On the same side of the platform, the losses from free users are
compensated for by premium users. Furthermore, free users may attract third parties to the platform
due to cross-side network effects. This creates the opportunity to make chargeable services for third
parties, which in turn attract even more free and premium users (Wang, Tang, Jin, & Ma, 2014).
Table 4 shows how one side of a two-sided network often receives subsidies in form of discounts or
free goods, indicated with *.

Product category User/Consumer Company/Intermediary Producer/developer

Credit cards Consumer credit* Issuing bank Merchant processing

Operating Complementary Microsoft, Apple System developers*

systems applications
House sharing Borrowers* AirBnB Lenders

Reservation Travelers* Expedia, Orbitz Hotel, rental cars,

systems airlines
Portable Document reader* Adobe Document writer
documents
Plug-ins Applications software Microsoft, Adobe System developers*

Academic Articles Management Science Author submissions*

journals
Car Rider* Uber, Lyft Driver
transportation
Music streaming Listener* Spotify, Apple Music Artist

Table 3: Subsidies two-sided markets (Adapted from Parker & Van Alstyne, 2005, p. 1495)

23
A selection of the monetization models considered most relevant for MSPs are presented below
(Chaffey, 2020).

Subscription business model: This model entails a subscription fee (monthly, quarterly, yearly etc.)
to get access to the services on the platform. Examples are Netflix and HBO.

Freemium business model: Access to a limited part of the services for free, where you have to pay
a fee to get full premium access. Examples are Spotify and Dropbox.

Pay-per-service business model: The platforms enable tools and services that benefit both parties
by facilitating interaction. The customer pays for every transaction or item they use. Examples are
Uber and AirBnB.

Advertising business model: Platforms that are free to use can make money on ads. The platform
can charge the ad producers to get enhanced access to consumers by making their ads more visible.
Examples are Facebook and Google

COST-PER-UNIT

A distinctive MSP feature is that the costs-per-unit decreases logarithmically as MSPs scales. In
comparison, the traditional linear businesses are constrained by a U-shaped cost-per-unit-curve as
sales increase (Figure 5). To understand why, consider a linear business producing paper. To begin
with the company benefits from economies of scale as the production becomes increasingly efficient
as large quantities of wood lower costs. However, to grow further, the company has to invest heavily
in resources to expand its capacity – creating the U-shape. In contrast, MSPs grows by acquiring
more users to a minimal cost; AirBnB grows by acquiring new hosts that provides the houses
themselves – and Uber grows by acquiring new drives that provides the cars themselves.
Additionally, margins improve as the user base grow because users are willing to pay more to access
a bigger network (Johnson, 2019; Eisenmann et al., 2006). This enables monetization strategies that
can focus on growing the network through i.e., subsidies, since resources in many cases can be
acquired to a minimal cost.

24
Figure 5: Cost-per-unit curve. Linear business VS Platform business (Johnson, 2019)

25
3 METHODOLOGY

This chapter of the thesis will present how the study has been conducted. Initially, a short literature
review is presented. Thereafter, the choice and justification of an abductive and explorative research
approach, and a mixed method research design is discussed. The next part presents method related
to the interviews and surveys, including criteria, recruiting and company presentation. Thereafter,
the data collection is presented. The last part constitutes an evaluation of the data quality.

3.1 LITERATURE REVIEW

The review of the literature reveals that prior studies mainly have a theoretical or quantitative
method approach. Accordingly, the majority of the literature discussed in the theoretical
background are theoretical studies, such as the research on pricing strategies (Rysman, 2009; Rochet
and Tirole, 2003, 2006; Parker & Van Alstyne, 2005; Evans, 2003; Evans and Schmalensee, 2008). The
research on strategies in network markets such as Eisenmann, Parker & Van Alstyne (2011) and
McIntyre and Subramaniam (2009) are also theoretical. Selected examples of quantitative studies in
the literature are the study of entry in network markets (Zhu & Iansiti, 2012), the study of
complementors and network effects (Boudreau & Jeppesen, 2015) and Fuentelsaz et al.’s (2015)
research on strategic leveraging of networks.

RESEARCH GAPS

After providing a literature review regarding theory in the introduction chapter, and a literature
review regarding methodology in this chapter – this part underlines the gaps in previous research.
To summarize, the literature tends to focus on specific MSPs features, such as network effects
dynamics, competition and price strategies. Consequently, relationships between MSPs features
seem to be limited. Moreover, firm-initiated facilitation of network effects has had less focus as a
result of studies assuming the presence of it. Additionally, in the research field of MSPs, the main
bodies of research are quantitative or theoretical studies of established companies.

*Strategy: Network industry related *Quant = Quantitative *Qual = Qualitative case study
*Theory = Theoretical *E-P = Early-Phase

26
 Strategy* Monetization E-P* Quant* Qual* Theory*

Boudreau & Jeppesen 2015 X X

Parker & V. Alstyne 2005 X X X
Evans 2003 X X X
Evans & Schmalensee 2008 X X X
Rochet & Tirole 2003 X X X
Rysman 2009 X X
McIntyre & Subramaniam 2009 X X
Fuentelsaz et al. 2015 X X
Eisenmann et al. 2009 X X
Boudreau et al. 2020 X X
Bhargava 2014 X X X
Caillaud & Julian 2003 X X
Haigu 2009 X X

Table 4: Literature review: Main contribution and method

The above review suggests three gaps in the previous literature that this thesis can contribute to fill:
1) the relation between MSP features, such as network effects and monetization 2) qualitative case
studies and 3) studies of early-phase MSPs.

3.2 RESEARCH APPROACH

For this study, an abductive research approach was chosen. Abduction in terms of research means
to move from a conception of something, to a different, possibly more developed or more profound
conception of it (Saunders, Lewis & Thornhill, 2016, p. 152). Abductive research is beneficial when
the objective of the study is to discover new variables and relationships. This approach relies on
systematic combining, which is a process where theoretical framework, empirical fieldwork, and
case analysis evolve simultaneously. Thus, stressing theory development, rather than theory
generation. Rather than attempting to force the thesis to fit the preconceived theoretical framework
– the aim is to continuously develop the framework through the research. Consequently, the
approach allows the study to have a theoretical foundation that continuously develops as new
concepts and insight from the interviews occur (Dubois & Gadde, 2002, p. 555). Accordingly, this
approach permits the study to not get locked to either a deductive or an inductive approach.
Deductive approaches develop propositions from current theory and make them testable. On the
other hand, inductive approaches rely on grounded theory systematically generated from data

27
(Saunders et al., 2016, p. 153). The inclusion of the chicken and egg dilemma is a result of the
abductive approach. The dilemma was not part of the original interview guide. However, it was
brought up by several of the case company managers in the interviews, and therefore added.

Figure 6: Abductive reasoning (Dubois & Gadde, 2002, p. 555)

Additionally, an explorative approach was applied. Using interviews as main data source entails
researching the problem statements through the opinions and experiences of individuals. This tends
to make a rigid design and approach challenging. The explorative approach allows the research of
the problem statements to be more open and the flexibility and opportunity to change direction of
the study (Saunders et al., 2016).

3.3 RESEARCH DESIGN

A multi-case study was chosen as research design. This study seeks to explore how platform
managers facilitate network effects and monetize the platform without hindering growth. The
research questions presuppose in-depth research of multiple early-phase MSPs. Thus, justifying the
case study design. Yin (2003) argues that case studies are a suiting methodology when the research
objective asks “how” and “why” questions. In line with the abductive approach, case studies allow
theory generation (Eisenhardt, 1989, p. 535). Ultimately, a multiple case analysis with and abductive
and explorative approach allows the study to develop best predictions when answering the research
questions, based on detailed experiences from platform managers. The company sample (section
3.3.3) enables a cross-industry study that can examine industry-independent concepts.

MIXED METHOD

Case analysis typically entails collection methods such as interviews, questionaries and observations
(Eisenhardt, 1989, p. 534). The research method of this study is a mix of qualitative and quantitative
data, gathered from semi-structured interviews and surveys. Mainly, the data is qualitative from the

28
interviews. Additionally, a questionnaire was answered by the interview objects, providing both
quantitative and qualitative support to the findings. To quote Eisenhardt (1989, p. 534) qualitative
research provides evidence in the form of words. Whereas quantitative research provides evidence
in the form of numbers. This mixed design entails triangulation of method. Triangulation entails
using more than one data source to evaluate and research if the findings support each other. As a
result, triangulation can increase the quality of the findings (Eisenhardt, 1989, p. 538).

Interviews are the most commonly used method to collect data in case-based research (Eisenhardt,
1989). Qualitative interviews meet the need for detailed experiences and thoughts the interviewees
have about a subject. The study seeks a deeper understanding of some aspects and relationship in
the literature. Accordingly, qualitative method suits studies where the purpose is to uncover and
interpret experiences and thoughts of individuals (Johannessen et al., 2016). The qualitative data was
backed up by quantitative data, by asking the candidates to rate their opinion to given statements
in a survey. The surveys also included some qualitative data by asking the candidate to give short
answers to clarify important aspect from the findings.

3.4 INTERVIEWS

3.4.1 CRITERIA

When choosing which companies to recruit, the following selection criteria was used:

Selection criteria Purpose

The platform is two or multi-sided Necessary to get insight about cross-sided network effects
and monetization of MSPs

Platform founded later than 2014 To meet the intention of researching early-phase MSPs

The platform is based and Research question limiting study scope to Norway
founded in Norway

Key employees/ co-founders To gain insight from employees that created the platform
eligible for interview

Table 5: Case companies: Selection criteria

29
3.4.2 RECRUITING

The following section is particularly useful for anyone considering conducting a similar study. In
terms of recruiting, limiting possible candidates to early-phase MSPs based in Norway, was
beneficial due to several reasons:

Easier to connect with: Logically, early-phase MSPs responded faster than the larger MSPs. The
general experience was that smaller MSPs responded and scheduled a meeting within a couple of
days. Whereas larger and slightly more established MSPs spent several weeks to answer due to the
complex company structure and size.

Same nationality: Contacting Norwegian companies as a Norwegian student is believed to have

made the recruitment easier. The communication and interviews were in Norwegian and seemed to
lower the barrier to establish contact.

Mutually rewarding: The impression during the recruitment process was that early-phase MSPs
saw a bigger up-side by participating and therefore more willingness to accept an interview.

Founders/Co-founders: Contacting early-phase MSPs made it easier to establish direct contact and
thus interviewing key personnel of the platforms. Interviewing founders and co-founders gave
direct insight to the minds that has established MSPs. This has been a vital contribution to the thesis.

The companies of interest were MSPs known prior to recruiting and MSPs suggested by candidates
already interviewed. The recruitment process consisted of contacting the companies via mail,
LinkedIn or the company website. The mail briefly explained the goal of the study and why their
participation would be valuable. In total 19 Norwegian MSPs were contacted and eight of them
agreed to an interview (Appendix D).

3.4.3 COMPANIES AGREEING TO INTERVIEWS

This section provides a brief description of the case companies and the candidate interviewed. The
abbreviations are used in the later tables of the thesis.

30
Learnlink (LL): Learnlink is an educational technology company providing private online tutoring.
The platforms connect pupils mainly in secondary school with freelance private tutors. The platform
takes a cut for each hour of tutoring. The company was established in 20142. The person interviewed
is the CEO and Co-Founder, Jonas Ryen.

Snapmentor (SM): Snapmentor is a software-as-a-service (SaaS) company that enables a social

learning platform for higher education. They develop software and sell it to universities and higher
education institutions. Their software allows students to communicate and ask questions with
lecturers and teaching assistants. Thereby, lowering the barriers to asking questions. The company
was established in 20193. The person interviewed is the Academic Lead and Co-Founder, Eirik Berre.

Plaace (PL): Plaace is a data-driven platform matching retail properties and tenants. The platforms
allow tenants to establish in the best possible locations, and property owners can choose the concepts
that are best suited to their property. The company was established in 20204. The person interviewed
is the CEO and Co-Founder, Snorre Myhre.

Poption (PO): Poption is a software-as-a-service (SaaS) platform connecting job seekers and
companies. The software enables an easier process for the job candidates by creating candidate
profiles, building relations over time and apply for internships, graduate programs and jobs. The
software makes the process for the companies easier by making the hiring process more automated.
Poption was established in 20175. The person interviewed is the CEO and Co-Founder, Petter Haga.

Parqio (PA): Parqio call themselves “the shared garage of the future”, providing easier sharing and
administration of garages for housing association. Their technology also opens the garage gate
automatically with app, dialing, voice control or sign recognition. At the moment, Parqio label the
platform as one-sided. However, the platform is included in the sample as they are currently
working on becoming multisided through offering renting of garages to external users and

2
https://www.learnlink.no/
3
https://snapmentor.no/about-us/
4
https://plaace.co/
5
https://thehub.io/startups/poption

31
collaborating with other suppliers. Parqio was established in 2019.6 The person interviewed is the
CEO and Co-Founder, Henrik Aamlid.

Graphiq (GR) Graphiq matches companies needing help with creative projects such as
presentations, marketing material, branding, websites, illustration and animation – with freelance
designers. Graphiq was established in 20157. The person interviewed is the Chief Product Officer
and Co-Founder Erik Sandsmark.

Hygglo (HYG): Hygglo is a marketplace for rental between private individuals. When using
Hygglo, the platform handles insurance, payment and verification. Hygglo is a service that started
with the simple motto: "Things should be used". The platform was established in 20168. The person
interviewed is the CEO and Co-Founder, Ola Dagerfors.

Hyre (HYR): Hyre is a car sharing platform. The Hyre app allows you to order, open the car and
pay – without meeting a middleman. The goal is that you are never more than 5 minutes away from
the nearest Hyre car. The cars on the service are shared by Hyre and other professional car rental
companies, not private individuals. Hyre was founded in 20179. The person interviewed is the CEO
and Co-Founder, Nils Petter Nordbø.

6
https://www.parqio.com/

7
https://www.graphiq.design/

8
https://www.hygglo.no/

9
https://www.hyre.no/om-oss/

32
Company MSP Industry Value Supply Demand Monetization
Type proposition model

LL Service Education Online private Private Pupils Subscription

platform tutoring tutors

SM SaaS* Education Lowering Educational Students Enterprise sale

barriers to ask institutions
questions

PL Asset Retail Matching of Retail Tenants Freemium

sharing retail properties properties subscription
platform and tenants service

PO SaaS* Employment Simplifying the Companies Job Subscription

hiring process hiring candidates

PA Asset Retail Garage Garage Private Subscription/

sharing administration owners individuals freemium
platform and sharing

GR Service Graphic Matching Freelance Companies Pay-per-service

platform design companies with designers
freelance
designers

HYG Sharing Rental Insured private Private Private Pay-per-service

economy rental lender borrower
platform

HYR Asset Automobile Easy car-sharing Car lender Car Subscription,

sharing borrower pay-per-service
platform & marketplace

Table 6: Sample of Case Companies

*Software-as-a-service

33
3.4.4 INTERVIEWING

The interview guide (Appendix A) was the outset of the interview. However, semi-structured
interviews allow the interviewee to move freely to other related aspects that could be relevant to the
study. Therefore, in line with the explorative approach of the study, the interview guide was
continuously shaped by new insight from the interviewees. One week prior to conducting the
interviews, the interview guide was mailed to the interviewees. Furthermore, consent to the
processing of personal data was attached and signed by the case company candidates (Appendix B).
The time and length of the interviews were decided on the premises of the interviewees. They also
decided on how to conduct the interviews. Due to the covid-19 pandemic, videocalls was preferred
by the majority. However, Hygglo preferred interview via mail. Additionally, Hyre did not have the
time and resources to conduct an interview and participated only through the survey. All interviews
lasted between 45-60 minutes (Table 7).

INTERVIEW GUIDE

The structure and design of the interview guide was inspired by Johannessen et al. (2016) and
consisted of three phases:

Phase 1/ Warm-up: Initially, after some greeting and small-talk, information about the interviewees
rights to anonymity and confidentially was repeated. Furthermore, they were reminded that the
interview was recorded. Lastly in this phase, the essence of the thesis was repeated, and the
counterpart briefly introduced themselves and the company. This phase seeks to “warm up” the
interviewee with easy dialog.

Phase 2 / Main phase: After warming up the interviewees, the main phase asks the key questions.
This entails gaining insight about facilitation and awareness of network effects, monetization
strategies and thoughts about monetization’s effect on network effects.

Phase 3 / End phase: Due to time restraints this phase was short. The goal of this phase was to allow
the interviewee to speak more freely about the theme. Ultimately, the end phase also included
thanking the participants for taking time off work to help the study.

34
3.4.5 SURVEYS

The quantitative og qualitative questionnaire consisted of statements and short-answer questions,

to clarify and increase the understanding of certain aspects. The statements were answered on an
opinion scale, were 0 corresponded with “disagree” and 6 corresponded with “agree”. The
statements were: 1) We have strategically planned in order to achieve network effects 2) Network
effects has been a “beneficial consequence” rather than something we have strategically planned to
achieve 3) We have kept the price low in order to achieve positive network effects 4) We offer free
trials to increase activity and users on the platform 5) We think it is important to charge a small fee
instead of offering free trials 6) How aware have you been of network effects in the establishment
phase of your platform? Typeform.com was used to make the questionaries, which were sent out
via mail and answered online. The answers can be viewed in Appendix C.

PL LL PA PO SM GR HYG HYR
Interview
Videocall X X X X X X
Duration (minutes) 60 50 55 40 50 45
Mail X
Survey X X X X X X X X

Table 7: Case companies: Communication channels

3.5 DATA ANALYSIS

This part of the chapter explains the transcription process and the choice of thematic analysis as
analytical technique. The sample size of data needs to be to the extent that it is possible to examine
the research questions properly. The sample size was done with regards to reaching a saturation
point. Reaching a saturation point implies that an additional interview would not add new
information to the study (Johannessen et al., 2016, p. 114). Importantly, the assessment of when a
saturation point was reached, depended on resources and time allocated to the study. The saturation
point was considered reached after eight company participations.

3.5.1 TRANSCRIPTION

Every interview was recorded using a smart phone. Following the protocols from the interview
guide, the sound files were deleted after the transcription was completed. Firstly, the interviews

35
were conducted and transcribed in Norwegian. Then, the transcription was translated to English.
Expect from greetings prior to recording, no dialog from the interview was excluded from the
transcription. Thereby, reproducing the interviewees’ actual use of words and expressions to ensure
that opinions and considerations was best preserved.

3.5.2 THEMATIC ANALYSIS

Choosing a thematic analysis for the analytical work is beneficial to the abductive approach of the
study, as it allows the discovery of both familiar and new themes within the research field. A
thematical analysis offers structures to find patterns and common features in data. Borrowing from
Saunders et al. (2016, p. 580), the thematic analysis consisted of four steps:

Step 1. Get to know the data: According to Saunders et al. (2016) it is necessary to be familiar with
the data before coding. Creating the interview guide, conducting the interview and transcribing the
interview manually was considered to result in satisfactory familiarization. Thus, the coding was
conducted shortly after the transcription.

Step 2. Coding the data: The coding software from Ligresoftware10 was used for the coding process.
The software allows you to highlight text and label it with a code – and provides a thematic analysis
output. The coding process entailed coding opinions and aspects considered as relevant to answer
the research questions. Both “in vivo” and “a priori” coding was used. In vivo-coding entails coding
new concepts the interviewees used, such as platform-to-one-side-effect used by Graphiq (Figure 6).
Whereas a priori-coding means to use concepts from existing literature (Saunders et al., 2016, p. 582),
such as coding same-side network effects exemplified in Figure 7.

10
https://ligresoftware.com/

36
 Figure 7: Screenshot Ligresoftware. In-vivo coding.

Figure 8: Screenshot Ligresoftware. A priori coding.

Step 3. Identifying relations: When identifying recurring themes and relations, the “Analysis
Report” provided by Ligresoftware was valuable. The software made it possible to list the coding
from all interviews by categories and sub-categories. Thus, making it easier to find common features
and relations.

Step 4. Testing the data: Because the interview structure consisted of difference theme sections, an
important aspect was to be critical to the interpretations. To exemplify, if the dialog was in relation
to section 2.1) network effects from the interview guide, it is easy to jump to the conclusion that the

37
coding relates to network effects. However, due to the semi-structure, the dialog should perhaps be
coded to a completely different theme. Consequently, it is important to test the interpretations to
avoid that the assumptions made are too subjective. This type of testing seeks to secure an honest
analysis of the interviewee’s actual opinions (Saunders et al., 2016).

3.6 EVALUATION OF METHOD

The evaluation of method entails the discussion of reliability, internal and external validity,
confirmability (Saunders et al., 2016, p. 205), as well as limitations and assumptions.

3.6.1 RELIABILITY

In general, the study continuously seeks to achieve a high degree of reliability by explaining and
justifying all aspects related to method. There is an increased likelihood of finding results supporting
the research questions, leading to confirmation bias (Nickerson, 1998). As a result, there is a high
probability that the study is bias, even though it aims to stay neutral. Always attempting to ask
open-ended question, instead of confirmatory questions, has had a preventive effect on potential
confirmation bias. In addition, it has been repeatedly stated to the interviewees that all insight from
founders and co-founders are valuable to the study. Thereby, encouraging an open-minded dialog
as much as a semi-structured interview setting allows.

3.6.2 VALIDITY (INTERNAL)

A potential weakening factor of internal validity is that the study is conducted by only one person.
Researching with one or two other persons could strengthen the validity by having the opportunity
to discuss, evaluate and analyze the data with the purpose of being as objective as possible
(Johannessen et al., 2016).

3.6.3 VALIDITY (EXTERNAL)

The external validity is to be understood as transferability and ability to generalize the study. Semi-
structured interviews are potentially weakening the external validity in terms of duplication. It
allows follow-up questions and new aspects to study – which could have great impact on the
discussion and conclusion. This makes it difficult to gather information and data in the same way as
this study, thus duplicating it (Saunders et al., 2016). Some literature claim that theory building from
case studies is limited by the researcher’s preconceptions. However, Eisenhardt (1989, p. 546) argues
that the opposite is true, since the continuous comparison of conflicting realities tends to unfreeze
thinking and thus have the potential to generate theory with less researcher bias. Furthermore, there

38
is transparency about the recruiting process and the sample of company cases. This strengthens the
opportunity to extend the research of this study.

3.6.4 CONFIRMABILITY (OBJECTIVITY)

Objectivity has continuously been important to the writer and is believed to be strong. As
mentioned, testing the data has been important to reduce subjective interpretations. As discussed,
the main challenges were to not lead or direct the interview too much, leading to confirmation bias.
Additionally, all findings and interpretations from the interviews were sent to the interviewees to
avoid any misinterpretations.

3.6.5 LIMITATIONS AND ASSUMPTIONS

Length of interview: Understandably, the founders and co-founders of the companies did not have
more than one hour to spend on an interview. With semi-structured interviews being the primary
qualitative data, it could have been beneficial to have more time to ask follow-up questions.

Single company source: The value of interviewing founders and co-founders has been mentioned.
However, every interview was with one representative from the company. Having only one source
of company information is considered as a possible limiting factor. Moreover, there will always be
a risk that founders and co-founders, conscionably or unconscionably, make statements “protecting”
their reputation – due to their company status. With that being said, the experience was that the
interviewees acted professional, truthfully and sticked to the topic of interest.

Transcription: Automatic transcription software is a helpful and time saving tool when conducting
interviews without a thesis partner. However, this was not a possibility due the sound quality of a
recorded online videocall. As mentioned, no companies suggested physical meetings for the
interviews due to covid-19. Consequently, all transcribing was done manually.

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4 FINDINGS

This chapter presents the findings from the thematical analysis that are of relevance to answer the
research questions of the study. The findings are divided into two main parts relating to each of the
two research questions: 4.1) facilitation of network effects for early-phase MSPs, and 4.2)
monetization’s influence on network growth for early-phase MSPs. The findings are from the
interviews and surveys and will be summarized and discussed in the discussion chapter.
Importantly, the research questions implies that the study seeks to identify features regarding early-
phase MSPs. Therefore, it is beyond the scope of the thesis to divide the findings with regards to
each MSP type (asset sharing platform, service platform etc.).

4.1 FACILITATING NETWORK EFFECTS

In order to facilitate network effects, three main aspects were found to be essential: 4.1.1 manager
initiatives, 4.1.2 activating the network and 4.1.3 solving the chicken and egg dilemma.

4.1.1 MANAGER INITIATIVES

To leverage same-side network effects, facilitating communities were found to be an essential

strategy for the MSPs. Secondly, supplier collaboration and compatibility of the platform were a
helpful tool to facilitate both same-side and cross-side network effects. Furthermore, curation of the
platform was important to prevent negative network effects. Lastly, this part identified how aware
the managers were of network effects. Table 8 summarizes the most essential commonalities found
to drive network effects which the following will elaborate further.

PL LL PA PO SM GR HYG HYR
Community X X X
Future plans X X X
Supplier collaboration X X
Compatibility X X X
Entry barriers
High X X X
Low X X X X
Awareness* 10 0 9 8 10 8 10 10

Table 8: Findings: Initiatives to increase network effects

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 *opinion score from survey: awareness of network effects (0-10)

COMMUNITY

The thematic analysis identified that providing communication tools to create communities, was
important to facilitate same-side network effects by improving knowledge sharing. In order to
benefit from same-side network effects, Learnlink created a community for the private tutors on the
platform. As the network of tutors grew, they created value for each other by increasing the speed
and quality of knowledge sharing through a “digital teacher’s room”. Furthermore, the tutors spent
less time preparing classes as it is also was possible to share online teaching tools and curriculums
between the tutors. Learnlink said this about the value of community:

“But on the learning side, we have what we call a digital teacher's room. Which is a chat
really, where they spar a lot on challenges they face and help each other with things that
happen (…) So, we are quite happy with that, and we see that the more there are, the faster
you get help. And the better questions are provided. So, we see a very clear effect.”
(Learnlink)

Similarly, Hygglo and Snapmentor created communities through forums and FAQs (Frequently
Asked Questions). Hygglo made use of a forum on Facebook where the lenders have a community
to share tips and tricks. Whereas Snapmentor creates anonymous FAQs based on questions students
have asked. Thus, more students on the platform creates more FAQs, providing more answers to
other students. As a result, a larger network creates value.

Plaace, Poption and Graphiq have not yet created these types of communities on the same side of
the platform. However, all three platforms mentioned it as an opportunity in the future. Firstly,
Plaace envisions to add social functions to increase the usefulness and information about the retail
properties on the platform. Consequently, a growing network can create same-side network effects
through a better and more effective user experience. Furthermore, Poption considers a forum for the
job seekers on the platform where job seeking advice can be shared. By doing this, a larger pool of
job candidates creates more ideas on how to catch the attention of the companies hiring and secure
the job. Lastly, Graphiq were convinced that there was a great untapped community potential on
their platform, not yet pursued due to lack of community management:

“We also have a bit of a community effect. Because we all have a Slack team where everyone
can communicate with each other, but we do not have any community management, so there
is a very large untapped potential. We know that many of the freelancers find it exciting to
meet other freelancers to discuss and meet. So, we see some same-side network effects on the

41
 designer side, but there I am absolutely convinced that there is a great untapped potential.”
(Graphiq)

GDPR was found to be a potential blocker for creating communities. As mentioned, Snapmentor’s
software creates FAQs. Thus, if many education institutions have the same subjects and questions,
students across different universities could create a larger knowledge base of FAQs and create same-
side network effects. However, mainly due to GDPR, this is currently not possible for Snapmentor,
because each institution has closed learning environments.

SUPPLIER COLLABORATION & COMPATIBILITY

Parqios strategy differed from the other MSPs due to their large efforts on partnerships with other
suppliers that could benefit from using Parqio. Parqio mentioned the possibility of letting the online
grocery delivery firm Kolonial use Parqio garages. In that way, Kolonial could drop of groceries in
Parqio garages if the customers were not home. Additionally, Parqio currently has a pilot project
with the Hyre. This collaboration creates a mutual relationship, where Hyre-cares can be rented
from a Parqio-garage. Parqio currently has Hyre-cars in two garages. In addition, the company are
currently in a dialog with Nabobil (another care sharing company) about the same integration. The
solution creates same-side network effects as the suppliers creates value for each other. Moreover,
cross-side effects occur as the demand side expands to a larger network (Kolonial, HYRE, Nabobil):

“This is a bit of our core. We have APIs (application programming interfaces) against Hyre,
which allows Hyre to open the garage door and let other customers into their car inside the
garage door (…) So, the fact that Hyre comes in and rents that parking space, means that the
entire housing association now has access to car sharing. Suddenly there is a Hyre car in the
garage. So, it is a value creation that happens for the rest of the housing association.” (Parqio)

The platforms of Hygglo, Parqio and Snapmentor are compatible, meaning that the platform is
integrated and works together with other platforms. For Snapmentor, this means that their
educations software can be integrated with other platforms most used by institutional educations,
such as Canvas, Itslearning, Moodle, Padlet and Black Board.

CURATION

The majority of the platform managers was aware that a disproportional growth of the platform
sides, created a risk of negative network effects. This matter relates closely to the level of curation
the MSPs had. An important part of Graphiq and Learnlink’s business idea was to establish high
entry barriers for their supply side (freelance designers and private tutors). This entailed strict

42
quality checks and was a success criterion for the platforms and prevented negative network effects
or disturbing noise:

“And we have a very high success rate on our projects because the freelancers we have, have
gone through an important quality check.” (Graphiq)

“Because this is their children who need help and this is the most important thing they have
in the world, and to try and fail and rate and such - they do not have the time or desire. It is
much more important for them to get high quality. So, we have narrowed down a lot who
can teach. It is a quite strict quality assurance, and we do a lot of courses and training, etc.”
(Learnlink)

Similarly, Plaace created entry barriers for tenants to avoid unserious actors and thus distinguishing
the MSPs from other MSPs:

“It is a barrier for tenants to enter the platform. So, you will not be called up by unserious
actors. This is also one of the reasons why Finn.no does not work as well in this specific
market. At least the big and medium-sized firms "dread" putting up their locations there a
bit, because then you can get unserious players who do not have the business edge.” (Plaace)

On the other hand, enabling frictionless or easy access to the platform were also found to be
important for the platform managers, as it allows scaling of the network effects. This is of quite
obvious importance for a marketplace platform such as Hygglo. The entry barriers for students
asking questions on Snapmentor and job seekers on Poption were also found to be low. Snapmentor
made access to the platform easy but made sure to develop a software that could withstand a large
network, thus preventing potential negative network effects:

“We have not experienced it yet. But it has been in our minds in development. We have
developed all match making algorithms to withstand a very large numbers of users. Because
we want to be able to handle it.” (Snapmentor).

Similarly, Parqio operated with low entry barriers and experienced that their platform had
mechanism having a preventative effect on the potential negative effects coming from a larger
network:

“We actually think we have a strong value proposition, because we have a full overview of

43
 who has access and at what time. So, you should be pretty stupid as a thief, if you leave your
credit card and other digital tracks before you steal a bike in a garage.” (Parqio)

Whereas Poption operated with quite low barriers but had some minimum requirements:

“And we got early feedback that the employers got many "irrelevant" candidates. So, then
we introduced some minimum requirements to fill in on the candidate profiles. So, you avoid
candidates who have only filled in names and emails.” (Poption)

AWARENESS

The study aimed to increase the knowledge of how aware the platform founders were of network
effects and strategy relating to it. The findings showed a high level of awareness. Accordingly, Table
8 showed that the opinion scale of network effect awareness had a high average score of 8.1. In
relation to strategic planning, all managers except one, stated that they to some degree agreed that
they strategically planned to achieve network effects (Figure 9). Parqio expressed how a high
awareness of the network effects has been important:

“Network effects are something we have been extremely concerned about from the start. The
CEO of the company [Ketil Hoigaard], has 15-20 years of experience in building partnerships
in Trolltech and Nokia… To mention a few (…) And much of it has not been taken out to the
product yet. But we should be ready to take it out when we have successful pilots behind us,
and together with them we are ready to take it a step further.” (Parqio)

Figure 9: Opinion scale; awareness of network effects

44
With regards to awareness, Snapmentor was conscious of spending time on the customer in the
“right” way to facilitate for network effects:

“I am maybe 1% of the working day to those I contact. So, then the question is whether I
should spend that time getting them to optimize the use of our product. Or should I spend
the time getting them to recommend us further.” (Snapmentor)

Additionally, Snapmentor emphasized the importance of identifying what value the customers
place on the platform:

“The most difficult thing for a start-up in the technology industry is to find out; What is the
value your customers place on you? We interview customers. Ask them how they would sell
the product to others. It's definitely something you should not take for granted that you
actually know. You can make a product based on what you think creates value A and B, and
then you ask the customers, and it is something else they care about.” (Snapmentor)

Lastly with regards to facilitation of network effects, cross-side network effects were referred to as a
more obvious advantage of the platform, and something that did not require as much facilitation.
The thematic analysis found that cross-side network effects were a more natural dynamic to the
users because it was a result of the original business idea for the platform. This often implied an idea
where two user groups benefit from each other as the network grows:

“Yes, that effect is quite obvious. That those who are teachers want a job, and the more
students that are available the more secure income they have, as there are more students
available.” (Learnlink)

“Yes, that is the obvious advantage of the platform (…) So, for them [freelance designers],
being part of Graphiq costs very little, because it is a potential source of business for them.
So, the more clients we have on the other side, the more attractive it is to be a freelancer. So,
there is definitely a cross-side effect there.” (Graphiq)

“We define ourselves as a peer-to-peer platform which makes cross-side network effects
integrated in the platform.” (Hygglo).

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4.1.2 NETWORK ACTIVITY

The study gave insight into how the early-phase MSPs keeps their network active to stimulate
network effects. The nature of network effects presupposes an active network to create value for
each other. To achieve this, notifications, exclusivity, bonuses and showcasing of value was found
to be most crucial. Additionally, preventing off-platform activity was found to be important. Table
9 summarizes the identified strategies:

Company Strategies
Plaace Notifications, exclusive information
Learnlink ---
Parqio Exclusive deals
Poption Targeted marketing, customer training
Snapmentor Showcasing value
Graphiq Customized deals
Hygglo Reward system
Hyre ---

Table 9: Findings: Strategies to activate network

NOTIFICATIONS AND EXCLUSIVITY

Plaace worked hard to become a “sticky daily tool” for the users and gave plenty of thought on how
keep the users and the platform active. Plaace mentioned exclusive information on their platform as
an important feature. This entailed access to information about customers that goes beyond publicly
available accounting figures on other websites. Furthermore, Plaace used data from tele-companies
and transaction data from banks, to give consumers notifications about turnover records and area
activity. By doing this, Plaace triggered the interest of consumers to make them use the platform:

“Yes, we have done a lot to keep the platform active, and that is probably a bit of the success
criterion for us. We have talked a lot about it becoming a "sticky daily tool". If you are looking
for a property, you will be on the platform more often. But here we can, among other things,
send notification and push when new properties arrive.” (Plaace).

46
Hygglo offered carrots or incentives in form of cash, by creating a recruitment system, where users
get cash for recruiting others to the platform. Parqio also made use of notifications about area activity
in order to trigger activity. Furthermore, in line with Plaace’s exclusivity strategies, Parqio offered
incentives to the users by offering exclusive parking spots to their users:

“So, a carrot to join the Parqio platform, is that for a while we may do this exclusively for
those who are on the platform with their garages. So, they can rent other places that are not
available to anyone other than those who are Parqio customers. It is a kind of an exhaust-
gray version of ‘Clubhouse’.” (Parqio)

Of the case companies, Snapmentor mentioned a unique strategy to keep customers active which
was by showcasing value:

“And we are conscious of showing the value we create for the customer. The value of having
an analytics dashboard and that kind of thing, which allows the customer to see the effect of
... or see the value creation.” (Snapmentor)

To achieve positive network effects through an active network, three of the managers mentioned the
importance of hindering interactions taking place outside of the platform. Graphiq explained how
they kept the interactions between the companies and freelance designers on their platform by
providing more than just consumer and producer matching:

“The key for us has been to offer more than just matching. So that the service is more than just
looking for a freelancer for the customer. We have built the entire service based on
streamlining a customer journey. From ordering, to quotation, to how to work the project. And
then it builds so much value into project implementation that it makes sense to pay a small
premium on top of the freelancers' salary, for example. Had we only offered matching, we
would certainly have had greater problems keeping customers on the platform and could not
have taken such a large cut.” (Graphiq)

Creating enough value on the platform was key for Parqio as well:

“There will also be opportunities to make agreements outside the platform, which will
reduce our revenue streams. So, some of the development should be about creating enough
value on the platform, so it becomes too much "hassle" to do it off the platform.” (Parqio)

In a similar matter, Hygglo provides insurance when their customers use their platform to pay for
loan services. This has been important to the customers. Thus, avoiding the potential threat of
private rental happening off-platform.

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4.1.3 SOLVING THE CHICKEN AND EGG PROBLEM

An important prerequisite to facilitate same-side network effects for early-phase MSPs is to establish
an initial user base on one of the platform sides – also known as solving the chicken and problem.
When both sides are attracted, cross-side network effects can follow as well. The demand side of
MSPs was found most crucial and difficult to recruit. Furthermore, creating stand-alone value,
adopting pilot-users, pre-announcing the platform and using their own skills was essential to
overcome the challenge. The most important findings are summarized in Table 10.

PL LL PA PO SM GR HYG HYR
Initial recruiting
Demand X X X X X X
Supply X X X
Skills provided by founder(s) X X
Pilot-users X X X X X
Pre-announcement X X X
Stand-alone value X X

Table 10: Findings: Strategies to overcome the chicken and egg problem

RECRUITING

Nearly all the MSPs focused their recruiting on the demand side of the platform. So, in general, the
initial challenge for the MSPs of the study was not to supply the product or service. It was to find
someone who demanded it from the get-go. Here, exemplified by Graphiq:

“We built it very gradually on both sides. So, we started with, as I said, just myself because
I’m a designer. Then, we have worked all the way 95% to get customers, and 5% to get
freelancers. Because freelancers come a little by themselves. If we get assignments, they are
very interested in being a part of it. So, it's a bit of a "search cost" to find them, but in many
ways it has been easy. But for us, it's really about using as many resources as possible to
bring in customers.” (Graphiq)

The study gained insight about whether or not announcements about the platform and pilot-users
pre-launch was used to establish a network. As Table 10 illustrated, Plaace, Parqio and Hygglo made
use of both strategies, as a way to initiate a small user base and create expectations to enable
recruitment of the platform. Plaace even announced the platform before designing and building it.

48
By doing this, the founders got input on feature priorities and attracted pilot customers. Oppositely,
Hyre did not pre-announce the platform in order to maximize the PR effect at launch date.

The study also found skills provided by the founders of the MSPs to be a solution to start recruiting
on one side of the platform. In the very beginning of Graphiq, co-founder and CEO, Erik Sandsmark,
provided designer skills to customers. Similarly, co-founder and CEO of Learnlink, Jonas Ryen,
worked as a private tutor.

STAND-ALONE VALUE

Plaace had a clear vision from the beginning regarding the chicken and egg problem. The platform
was aware of creating stand-alone value from the start. This entailed the employees of Plaace making
sure some value was in place for the tenants, even if the other side of the platform was not filled up
sufficiently:

“So, a concept we have talked a lot about is that the product should have stand-alone value
from the very beginning. What this means in practice, is that you as a tenant when you come
in, there are already some property owners there. Then we also buy datasets on who owns
different properties, which means that you get some additional information that is valuable
(…) In addition, we post some data from the beginning. You get data on different areas and
the composition. We are also working on analysis packages that provide better decision-
making power (…) So, the sum of this should make up for the fact that the platform may not
be completely filled up on the opposite side.” (Plaace)

Parqio solved the problem in a similar way. Their technology makes it easier to get in and out of the
garage. Thus, the consumers experience value from Parqio’s platform before someone actually uses
Parqio to rent their garage space. This attracts one side of the platform, regardless of the size of the
user base on other side of the platform. It should be mentioned that this is possible mainly because
Parqio are currently evolving from a one-sided platform to a multi-sided platform. Furthermore,
Parqio can convert these producers to consumers:

“In relation to the chicken and the egg, we have gone against housing associations, i.e.,
private individuals. And we create value for them, completely independent of the rental part
now. We make it easier to get in and out. So, we can build up a certain volume on the number
of users and parking spaces. But the other big advantage is that these residents are on both
sides of the platform. They are both consumers and producers of spare capacity. If you have
10,000 consumers on the platform, then you have potentially 10,000 producers as well, and
potential tenants.” (Parqio).

49
4.2 MONETIZATION

In relation to network effects, this part assumes that network effects are positively correlated with a
larger network. Therefore, the findings of this part look at how different monetization strategies
affect participation on the platform and thereby network effects. Table 11 shows the most essential
findings and indicates a sample of platform managers that had opposite approaches to monetization:

PL LL PA PO SM GR HYG HYR
Subsidies X X X X
Penetration pricing X X X X X
Free trials X X X
No discounts X X X

Table 11: Findings: Pricing strategies to increase network

4.2.1 SUBSIDIES AND PENETRATION PRICING

The study uncovered how the case companies related to subsidizing a user segment in order to
increase the network size. Out of the eight companies, Hygglo, Poption, Plaace and Hyre offered
subsidies to one side of the platform. Additionally, these four companies also made use of
penetration pricing, which implies using an early low price to establish network, followed by a later
increased price. This indicates that for 50% of the case sample, a discounted price to one side of the
platform was an essential strategy to grow the network.

Poption subsidized the job seekers by offering the platform for free, because they are the more price
sensitive side of the platform. Whereas Hygglo subsidies the demand side which are the borrowers.
This was because the demand side primarily was the most important side to recruit for Hygglo.
Plaace subsidizes the retail tenants as they were most in demand. Parqio considered low prices to
be crucial both to take the platform internationally and to increase the network.

“So, on a general basis, we keep prices down, because growth and networks are crucial if we
are to be able to take this out internationally, then we need solid growth (…) It has been
important to us that there should not be a barrier for the housing associations. The value of
the platform increases as we have many locations. And we focus on delimiting geographical
areas and keeping the price down, so we get as many customers as possible.” (Parqio)

50
4.2.2 FREE TRIALS

The platform managers had different opinions about the value of letting the customers try the
platform for free for a limited time. Parqio and Poption made use of free trials. Parqio was clear on
free trials being important to the platform. In their opinion free trials allows the costumer to feel the
advantage the platform provides, thereby increasing the size of the network. In many ways, the free
trial is vital to the Parqio business model, because it lets the user experience that life “pre-Parqio”
was a hassle:

“We say that it is a service [automatic drive-in for residents] you have to feel. To experience
the feeling that the garage door opens automatically. There is no point in paying for it in
advance. It provides no value. You have to know the simplification it provides. So, there we
have mostly given 2 months free trial, so the emotion should settle. So, returning to "life
before" is not something you want to return to. And we notice that and on conversion, that
most people want it.” (Parqio).

Similarly, Plaace offered a freemium solution entailing that posting and finding available spaces
were free but access to advanced features and data were not. Furthermore, Poption used free trials
and subsidies as a strategy to kick-start and fill up the platform:

“At first, we gave companies a free trial, and then we probably got 70 companies in six
months on trial. To kind of kick it off. And then we all offered a low price, to somehow get
them in. Because if we had not received the first 30 companies, we would not have had
anything to work with further. So, we subsidized there. And then we are now working to
up-sell to customers who were at very low prices.” (Poption).

On the other hand, Snapmentor found out early that it was necessary to stop offering free pilot
projects. Snapmentor repeated the importance of charging a small fee to make the customer more
invested and intersected in the product. The rationale was that a paying customer is more likely to
really evaluate the platform, than a non-paying customer:

“In the beginning we offered free pilot projects. So, institutions test the software for free for
example half a year. But we learned very early on that it was important for us to charge for
the pilot projects. Simply because if you want someone to test it out then you need them to
have a small buy-in (…) It may be an affordable pilot project. But unless the customer has a
small buy-in, there is a great danger that they will just “put you on the shelf””. (Snapmentor)

The same rationale was key in the interview with Plaace. They also experienced a sense of consumers
not considering the value of the platform in a serious way:

51
 “So, the advantage of charging for something is that you often join the committee and are
aware of what you get out of the platform. So, we're really thinking the opposite. That tenants
should also pay to take part in the platform.” (Plaace)

To summarize, Parqio and Poption saw value and an increased network from free trials. Whereas
Snapmentor and Plaace experienced that offering the service for free entailed the risk of ignorance
and customers that does not truly evaluate the platform value.

4.2.3 NO DISCOUNTS

The study identified that Hyre, Graphiq, Learnlink and Snapmentor viewed an increased price as
beneficial to network effects. Thus, contradicting the findings of Hygglo, Poption and Parqio
supporting a decreased price. Graphiq and Learnlink provide skills of people (freelance designers
and private tutors) by being a service platform. Therefore, a higher price worked as a quality
assurance of the service provided. Learnlink also emphasized that their subscription solution gave
a signal to the pupils and parents that learning is not a quick fix. This implies that both of the service
platforms from the sample are less concerned with a lower price.

“We initially had open pricing, so all teachers set their own hourly rate. And then they gave
bids to the pupils, then the pupils chose based on that, and then we got a cut of it. What is
interesting is that we thought the competition would push the price down. But the opposite
happened. Students tended to choose those who took the highest price.” (Learnlink)

“We have quite a lot of qualitative data that it does not have much effect to offer service
somewhat cheaper. For the vast majority of the customers, we work with are relatively
serious players, who accept the price level. But if the price goes lower, then there may be
some warning lights.” (Graphiq).

Additionally, Graphiq knew that their 30% cut of the designer services were quite high. However,
they could justify it:

“So, we argue that; If you worked as a designer in an agency, you are personally left with maybe
20-25% of the amount the agency invoices for you. While if you "break out" and work with
Graphiq, you get a much larger share of the cut yourself. All freelancers love to be part of
Graphiq, so it has been unproblematic to "pay" 30% to be part of the platform. We have of course
had some designers who think the cut is high, but yeah...” (Graphiq)

52
Snapmentor was aware of how charging the students could stop participation. However,
Snapmentor was in a favorable position allowing them to only charge the educational institutions,
which meant that students used the software for free:

“What quickly destroys the desire to learn is if you take payment from customers. When you
do software, you do a lot of nudging, right… You want a certain behavior. And when we are
not going to charge the end-users, we can focus all the nudging on a good learning effect.”
(Snapmentor).

The above findings indicate an ambiguous sample, which is reflected in the survey opinion scale
about the importance of low prices to increase network effects. Plaace, Hygglo, Poption, Parqio and
Hyre agreed that low prices are important to facilitate network effects. On the other hand,
Snapmentor, Learnlink and Graphiq disagreed with statement:

Figure 10: Opinion scale: Low prices and network effects

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5 DISCUSSION

The purpose of this section is to answer the two research questions of the study. This is achieved by
discussing the most apparent findings in light of existing literature.

5.1 “HOW CAN EARLY-PHASE MULTI-SIDED PLATFORMS FACILITATE AND

SUSTAIN NETWORK EFFECTS?”

Based on the findings, the first research question discusses how early-phase MSPs can facilitate
network effects by enabling communities, opening the platform to outside partners and developers,
activating the network and overcoming the initial chicken and egg problem:

5.1.1 COMMUNITY

This study found that communities improved knowledge sharing, thus increasing network effects
through a growing network. Communities allows value creation to take place within the platform
(Van Alstyne et al., 2016). This makes it possible to research and understand the needs and
engagement of the user base. Parker et al. (2016, p. 167) describes a dedicated community as one of
the greatest assets any MSPs or business can have. Dedicated communities are enabled by skilled
platform managers in order to develop norms, cultures and expectation that generate lasting sources
of value. They are desirable because users participate in shaping the systems they use. Communities
on the supply side is also known as communities of practice, which consists of producers that
collaborate regularly to share information and improve skills and was in this study found as the
most common side to create communities. Whereas communities on the demand side are also
known as communities of interest, which entails a group of people who share a common interest or
passion (Wenger, 1999; Fischer, 2001).

From a social network theory angle, Cross & Borgatti (2014) looks at how communities improve
knowledge sharing through stronger ties and skills. Additionally, the effect of brand communities
is beneficial. The benefit experienced by each user increases as the community grows. This is the
result of the consumers sharing a system of values and recognizing bonds of membership with each
other and with the whole (McIntyre & Subramaniam, 2009, p. 16). Ostrom (1990, p. 80) observed that
successful facilitation of communities often follows several patterns. The patterns were, among
others, clearly defined delineation of who is entitled to community benefits, and channels to
influence decision-making processes in the community.

54
Broadway (2021) emphasizes the risk of losing control over the data and value creation by
outsourcing the communication forums to larger social media platform. This approach was applied
by Hygglo using Facebook to make a forum. However, the threat did not seem to be present for
Hygglo.

The hitherto discussion implies literature acknowledging communities as enablers to increased

network effects by creating value together. However, studies emphasizing the importance of
communities on the supply side to enhance knowledge sharing seem to be limited. Furthermore,
communities exemplify an internal initiative to increase network effects which seem to be
overlooked by the majority of prior studies. This could be party explained by Eisenmann et al. (2016)
and McIntyre & Subramaniam (2009) claiming that previous research has an external focus on
achieving network effects. Parker et al. (2016, p. 33) justifies the external focus by arguing that
network effects turn firms inside out, as it is easier to scale network effects outside a firm because
there are always more people on the outside. This implies that the management of externalitites
becomes a key leaderhship. Bulding on this view is Chesbrough (2003) shifting focus from interntal
research and development to open innovation, and Shirky (2009) shifting the management of human
resources from employees to crowds. Consequently, less is understood about internal efforts to drive
network effects. Ultimately, this study contributes to the literature by suggesting that managers
enables communities on their platform to leveragre network effects.

5.1.2 OPENNESS

MORE OPEN

Open platforms are often compatible by integrating the technology of different MSPs (Fuentelsaz et
al., 2015). Compatibility and supplier collaboration was found to increase network effects, especially
through Parqio’s supplier collaborations. Prior studies point to supplier collaboration being
beneficial by capitalizing on the pool of resources technologies within a supplier network to achieve
positive network effects (Johnsen & Ford, 2001, p. 2). Moreover, Rossotto et al. (2018) emphasizes
that partnerships between MSPs could help market penetration and increase efficiency by allowing
a larger network. Additionally, compatibility is important for MSPs as it fundamentally enables a
larger user base, which is an important precondition to increase network effects (Fuentelsaz et al.,
2015). Sheremate (2004) found that compatible platform was especially important for smaller
companies. The latter finding indicates that Parqio does wise in collaborating with Hyre considering
the platform launched just recently.

The collaboration between Parqio and Hyre was found to create both same-side- and cross-side
network effects by integrating through application programming interfaces (APIs). This resonates

55
well with Parker et al. (2016, p. 143) claiming that the power of APIs to attract developers and the
value they can create is enormous. APIs makes it easier to write code that will connect seamlessly
with the platform infrastructure. The way APIs allows companies to grow by sharing services to
external developers or firms, can be compared to the way the World Wide Web opened up internet’s
use for billions of people. To exemplify, GoogleMaps was not a core asset for Google until a third-
party application enabled real estate locations on a map, resulting in its popularity to skyrocket (Iyer
& Subramaniam, 2015).

LESS OPEN

The findings showed different levels of openness. Accordingly, the platforms of Learnlink, Plaace
and Poption were less open. The challenge is always to find the right balance between open and
closed. Suitably, there is literature emphasizing the risks of compatibility. Johnson & Ford (2001)
found potential risks from supplier collaboration hindering the growth of network effects. This
entailed; dependency on other actors, dissipation of sensitive knowledge to third parties and
deliberately being exploited through co-ordination strategies. Moreover, compatibility can increase
the risk of transactions or value creation taking place on another platform, which can weaken
network effects (Eisenmann et al., 2006). Similarly, Fuentelsaz et al. (2015) found that incompatibility
make platforms more resistant to competition. This constitutes a broad consensus of a more closed
platform and incompatibility having its benefits as well.

CURATION

Openness also includes the curation of MSPs. The study identified that the balance between quality
and quantity was a continuous challenge for the case companies. According to Parker et al. (2016, p.
155) forward-looking platform management teams must design ways to evaluate the openness level.
As a maturing MSPs moves processes outside the platform, from employees to partners, it is
important to develop algorithms to automate curation or to decentralize curation to the base of users.
In general, the managers were aware of the potential negative network effects rising from
unregulated growth such as low-quality content inhibiting interaction or misbehavior (Van Alstyne
et al. 2016). High entry barriers in the form of strict screening of producers were found to be essential
to provide quality services for Learnlink and Graphiq. While these high entry barriers can prevent
negative network effects by removing unnecessary noise (Boudreau & Hagiu, 2009), it can also
potentially exclude the scaling opportunity a more frictionless entry provides (Parker et al., 2016).
Interestingly, the findings of the company cases were that the quality check did not hinder the
scaling opportunities. This is due to the fact that Learnlink and Graphiq screens the side of the
platform that is easiest to recruit. Using this method allows a strict screening process and growth on
the same user side.

56
To summarize, previous literature is ambiguous about openness and so are the findings of this
study. The above discussion and previous literature on openness can in many ways be summarized
by the following quote from Parker et al. (2016, p. 216): A platform business need not own all the
inimitable resources in its ecosystem, but it should seek to own the resources whose value is greatest.
In other words, early-phase MSPs should be aware of the potential benefits a more open platform
entail, through APIs and compatible software. However, openness exposes the company to
exploitation of knowledge and value creation and should be carefully considered and a continuous
evaluation by the MSP managers. Accordingly, Van Alstyne et al. (2016) emphasizes how these
choices are not fixed. The case is often that MSPs launch fairly closed such as the majority of the case
companies, and then open up as new types of interactions and sources of value are introduced.

5.1.3 NETWORK ACTIVITY

This study identified several methods to sustain activity in order to increase network effects for
MSPs, where notifications was the most prevalent. Network activity is essential because positive
network effects are reliant on an active network. The value for each user will not grow as the network
grows, if the other users are inactive on the platform (Tiwana, 2015; Song, Xue, Rai, & Zhang, 2018).

Snapmentor’s use of analytics dashboard to showcase their value resonates well with prior research
claiming that users need feedback to achieve long-term goals on a digital platform. These
dashboards can be categorized as quantifiers, which encourage users to repeatedly perform platform
activities by providing activity feedback in a meaningful way (Briel & Davidsson, 2019). Plaace and
Parqio nudges their users with notifications about area activity, turnover records and increased area
demand. This is beneficial due to its trigger effects, influencing subconscious user activities by
directing users’ attention to certain aspects of the platforms (Briel & Davidsson, 2019). These types
of triggers have been found to strongly influence user behavior (Kahneman & Thaler, 2006).

Importantly, a smaller but active network, can be competitive with a competing platform with a
larger user base (Lee, Lee, & Lee, 2006). Eyal (2016) emphasizes that keeping users active and creating
habit-forming technologies is key for the biggest MSPs today. It is important to create “hooks” such
as Snapchat, Instagram and Facebook does by making us check, scroll and coming back for more.
Eyal exemplifies that Facebook and Slack did not advertise in the Superbowl, because ads are not the
most important tool. The focus should be on creating habit which are far more powerful.

57
PREVENTING OFF-PLATFORM ACTIVITY

The findings of platform activity also stressed the importance of preventing activity happening off
the platform. Buyers and sellers who find each other on the platform are naturally incentivized to
take the interaction off platform if they can, in order to avoid a transaction fee. This problem is
especially urgent with platforms connecting service providers with service consumers. In most
cases, the interaction cannot occur until the producers and the consumer agree on terms by
interacting directly. The delivery of the service often requires direct meetings as well. These direct
interactions weaken the platform’s ability to capture the value (Parker et al., 2016, pp. 116-117).
Accordingly, off-platform activity was not an issue for SaaS platforms such as Snapmentor and
Poption. In these cases, both sides of the platform are completely dependent on the software to
interact.

For Hygglo and Graphiq who provides services and matching, the issue was more pressing. Parker
et al. (2016, p. 117) states that service providers of platforms that want to capture and monetize
interactions must create tools and services that benefit both parties by removing friction, mitigate
risk and otherwise facilitate interactions. This resonates well with the solutions found in this study.
Graphiq was dedicated on streamlining a customer journey that provided excess value for the
freelance designers and companies looking for design help, by providing “more than just matching”.
Consequently, they prevented connections outside the platform, and it was also important to
“defend” the platform’s cut of the transactions. Similarly, Hygglo avoided off-platform activity by
providing extra value through verification of purchases and insurance.

Previous literature seems to support the findings claiming that network activity is essential for
network effects. In extension of prior studies assuming that network effects require active users
(Tiwana, 2015; Song, Xue, Rai, & Zhang, 2018), this study exemplifies how the network is activated
– mainly via quantifiers and triggers.

5.1.4 CHICKEN AND EGG PROBLEM

The findings identified that the chicken and egg problem was important to overcome in order to
establish an initial user base large enough to experience network effects. Hygglo, Parqio and Poption
adapted pilot-users to the platform prior to the launch. This approach resonates well with studies
suggesting pilot-users as a possible solution to the chicken and egg problem by enabling an initial
base before actual platform launch (Hagiu & Spulber, 2013). Furthermore, a larger installed customer
base through pilot projects can be considered as a key strategic asset to increase network effects. This
is due to the fundamental dynamic of network effects, implying that consumers’ willingness to pay
increases with a larger installed network (Fuentelsaz et al., 2015).

58
Pre-announcing a platform prior to launch, has been found to drive network effects through creating
expectations of a sufficient initial user base. However, for platforms with a weak competitive
position, pre-announcements entail the risk of giving competitors more time to react and respond
(Bhargava, 2014). Moreover, consumer expectations about which product will become dominant is
important for making adoption decisions. Therefore, early signals to consumers about viability is
important (McIntyre & Subramaniam, 2009). Plaace, Hygglo and Parqio made use of this type of
expectation management. However, the study found that the majority of the MSPs overcame the
recruitment dilemma without pilot users or pre-announcements.

Creating stand-alone value was found to be important to overcome the chicken and egg problem.
Previous research emphasizes the benefits of stand-alone value for early-phase platforms. It can
kickstart product adoption because the initial users perceive a high network benefit despite a low
network size. Thus, providing stand-alone value, also enables the network size to grow over time
and maintain the price (Bhargava , 2014, p. 202). This can be defined as intrinsic benefits that accrues
regardless of actions of other users on the network (Bhargava & Choudhary, 2004)

Parqio create value for only the housing associations with their automatic garage door opener
technology. Consequently, the platform can later attract consumer that needs to rent a garage spot.
The literature identifies this approach as the single-side strategy. By creating value around products
or services that benefit a single set of users. Then later, convert to a platform business by attracting
a second set of users who to engage in interactions with the first set (Parker et al., 2016, p.95). Plaace
had a clear strategy to solve the chicken and egg problem by creating stand-alone value for the
tenants, by offering data as a value that is independent of the other side of the platform. This strategy
is also known as the seeding strategy, by creating value units that will be relevant to at least one set
of potential users. When these users are attracted to the platform, other sets of users who want to
engage in interactions with them will follow (Parker et al., 2016, p. 92). Additionally, Learnlink and
Graphiq used skills provided by the platform founders to initiate the supply-side. This approach is
not mentioned as a possible approach in previous literature.

To summarize, the company cases made use of strategies to overcome the chicken and egg dilemma
that is known to prior literature, including pilot-users, pre-announcement, stand-alone value, single-
side and seeding strategy. However, the findings add knowledge to the matter by identifying skills
provided by the managers as a solution to the chicken and egg problem.

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5.1.5 CONTRIBUTION

By conducting a cross-industry case study of four types of MSPs – asset sharing platforms, SaaS
platforms, service platforms and sharing economy platforms – this study contributed to identify four
key aspects to facilitate network effects: 1) creating communities to increase knowledge sharing, 2)
continuously evaluate and manage the level of platform openness, 3) activating the network through
notifications and exclusive deals, and 4) overcoming the initial chicken and egg problem by
recruiting pilot-users, pre-announce the platform, create stand-alone value or utilize skills of the
platform creators.

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5.2 RQ 2: HOW CAN MULTI-SIDED PLATFORMS BE MONETIZED WITHOUT
DISTURBING NETWORK GROWTH?

To answer the second research questions, the findings identified how the platform managers
experienced the relationship between monetization and network effects when establishing their
company. It is assumed that a larger network increase network effects (David, 1985). Therefore, this
part seeks to answer how different monetization strategies affect network growth and participation.

5.2.1 DISCOUNTS

The finding showed that the managers had different views of whether or not decreased prices would
increase network effects. Four of the case companies made use of subsidies. Previous litterature
argues that subsidies to one side is a benefitial monetization strategy to grow the network
(Eisenmann et al., 2006; Rysman 2009; Parker & Van Alstyne, 2005). Parker & Van Alstyne (2005)
claims that subsidies should be given to the side of the market that contributes more to demand for
its complement when there are high levels of cross-side network effects. Thereby, drawing
participation from that side and, in turn, making participation on the other side more attractive and
increasing network effects. Accordingly, three of the case companies in using subsidies, offered the
discount to the demand side because that was must crucial side to attract to increase the network
activity.

Graphiq, Parqio, Poption and Hygglo was aware that a low price or penetration pricing was
important to achieve a larger network. Since much of multi-sided platform’s perceived value
depends on network size, some researchers jump to the conclusion that sacrificing product margin
is almost essential to mobilize the network (Bhargava, 2014). In line with this thinking is literature
claiming that a lower price is particularly effective for network effects in the beginning of a product
cycle (Clements & Ohashi, 2005). These results suggest that a product should have a lower price-
cost margin at the outset to encourage adoption. After a very low early price, a later higher price is
justified due to the benefits of a robust network (penetration pricing) (Bhargava, 2014). Several
platforms have kickstarted network growth by providing heavy subsidies to one side (Parker & Van
Alstyne, 2005; Rochet & Tirole, 2003). The findings of this study also support prior literature claiming
that the quality or price-sensitive user side should be subsidized (Eisenmann et al., 2006). According
to Lin, Wu & Zhou (2014) market liquidity plays a key role in a platform’s subsidizing strategy.
Subsidizing the demand side is possible even when the market is illiquid. However, subsidizing the
supply side is only optimal when the market is sufficiently liquid. This study identified that the
MSPs subsidized the demand side, and consequently supports the findings of Lin et al. (2014).

61
Parker et al. (2016, p. 109) states that network effects measured by numbers of visitors alone don’t
necessarily reflect the monetary value of a platform. The interactions facilitated must generate a
significant amount of excess value that can be captured by the platform without producing a
negative impact on network effects. This resonates well with Snapmentor claiming that finding out
what value the customer place on your platform, is a bigger challenge that finding the right price.
Snapmentor interviews their customers to understand the excess value created in the minds of the
customer.

NO DISCOUNTS

The above indicates that the findings support literature emphasizing the importance of subsidies in
a two-sided market where the participation on one side effects participation on the other side.
However, the study also identified contradictory findings. The findings showed that three of the
companies did not use discounted prices to increase network effects, including both of the service
platforms. This implies that service platforms providing labor and skills, can concentrate more on
quality and less on a lower price level. An increased price was found to also signalize better quality.
Furthermore, some managers thought it was important to avoid free trials as it resulted in
unserious evaluations of the platform. There is limited previous literature suggesting the
latter findings.

5.2.2 FREE TRIALS AND FREEMIUM MODEL

Three of the MSPs were found to apply free trials to increase network effects. The consensus from
the platform managers using free trials was that it allowed the customer to experience the simplicity
the platform brings. These findings resonate with previous research suggesting that a free trial or a
freemium approach allow a possibly bigger audience to try a product and discover its merits.
Thereby, understanding the value of the paid or premium version (Chellappa & Shivendu, 2005;
Nelson, 2018). Additionally, for digital products it can be difficult to comprehend the true value
before actually using it (Caves, 2003). Only one of the case companies operated with a freemium
model. The favorable result of freemium models is that the free version expands sales, and the
premium product preserves a high margin and increases the profit (Niculescu & Wu, 2014; Parker
& Van Alstyne, 2005). Creating value for users and asking nothing in return is often a great way ro
attract members and engourage participation (Parker et al., 2016, p.125). Two of the case companies
first offered free trials then removed it. According to Parket et al. (2016, p. 127) this transition from
“free to fee” is complex and thus three concepts should be followed: 1) avoid charching for value

62
that users previoisly received for free, 2) avoid removing access to value that users have becomed
accustomed to receive and 3) creating new value justifing the fee.

However, Cohen (2012) underlines that SaaS companies (such as Plaace and Snapmentor) might be
exposed to a bigger risk than other marketplace platforms when offering free trials. This is because
a software can be easier to “exploit” by using it to a task that only has to be solved once a year. Thus,
free trails might have counteracting effect if there is little value delivered beyond the free trial period
(Cohen, 2012).

5.2.3 CONTRIBUTION

By conducting a cross-industry case study of four types of early-phase MSPs – asset sharing
platforms, SaaS platforms, service platforms and sharing economy platforms – this thesis
contributed to identify several monetization strategies to allow network growth. The thesis
contributes to support monetization approaches from the literature, by identifying subsidies, free
trials and penetration pricing as favorable approaches. Conversely, the study also found that
network growth could benefit from increased prices, when the platform offers a service such as
private tutoring or graphic design skills. Similarly, free trials were found to result in unserious
evaluations of some of the MSPs. The two latter findings seem to deviate from findings in previous
research.

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6 CONCLUSION

This study aims to understand how early-phase multi-sided platforms can facilitate network effects
and monetize the platform without hindering network growth. To achieve this, interviews and
surveys with eight Norwegian platform founders were conducted, constituting a sample of four
different MSP types: asset sharing platforms, software-as-a-service platforms, service platforms and
sharing economy platforms. The findings were then discussed in light of prior literature to answer
the two research questions of the thesis:

RQ1: How can early-phase multi-sided platforms facilitate and sustain network effects?

To facilitate and sustain network effects for early-phase multi-sided platforms, this study primarily
identified four solutions: 1) creating communities to increase knowledge sharing, 2) continuously
evaluate and manage the level of platform openness, 3) activating the network through notifications
and exclusive deals, and 4) overcoming the initial chicken and egg problem by recruiting pilot-users,
pre-announce the platform, create stand-alone value or utilize skills of the platform creators.

The key aspects above were discussed in relation to previous literature. Firstly, developing network
effects through communities contributes to the literature because previous studies generally have a
more external focus. Secondly, in line with the ambiguous literature about openness, the study
supported both compatibility and incompatibility as advantageous approaches for early-phase
multi-sided platforms. Thirdly, prior studies tend to presuppose an active network. Therefore, this
study contributes to the literature by suggesting concrete measures to activate the network. Lastly,
the findings in relation to the chicken and egg problem adds to the literature by identifying skills by
the managers as a possible solution.

RQ2: How can early-phase multi-sided platforms be monetized without disturbing

network growth?

To allow network growth, this study identified different monetization strategies. Firstly, the study
identified that subsidies to one side of the platform encourages participation, thus attracting users
to the other side(s) as well. Furthermore, penetration pricing and free trials was applied to grow the
network by several of the case companies. There is extensive literature supporting these
monetization strategies. However, the study also found that network growth could benefit from
increased prices. This was due to higher prices signaling a better product or service. Additionally,
free trials were found to result in unserious evaluations of some platforms. The latter findings
deviate from previous research.

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6.1 FURTHER RESEARCH

This study entails a broad set of findings supported by previous literature on facilitation of network
effects and monetization of multi-sided platforms. However, there are findings conflicting from
prior research, which implies suggestions for further research:

This study suggest that a better understanding is needed about how multi-sided platforms can use
internal initiatives to improve network effects. One suggestion for further research, is to build on
the findings of this study and explore the role of communities. Furthermore, this study calls for more
research on how to activate the network. Additionally, the findings regarding monetization
strategies implies further research on how an increased price potentially increases network effects
by signaling quality.

It could also be interesting to increase the generality by quantifying the effects of concrete initiatives
targeted at increasing network effects. This could, among other things, be done by using opinion
scales from consumers prior and post to a new platform initiative. Another quantitative approach is
to measure platform activity prior and post to a new monetization strategy or after changing a free
feature to a premium feature.

By having more resources and time, further research could investigate long term network effects of
initiatives from platform managers. One way of doing this is by conducting a single case study over
a longer time period. Accordingly, Reuver, Sørensen & Basole (2018) emphasizes that snapshot
research does not provide understanding of causalities and suggests longitudinal studies on
platform dynamics.

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8 APPENDIX

8.1 APPENDIX A: INTERVIEW GUIDE TEMPLATE

Interview with [Company name]

Interviewee: [Name, company role]

Interviewer: Eirik Norheim Schei / Student Copenhagen Business School

Purpose: To gain insight about facilitation and monetization of network effects in the early phase.

Phase 1: Intro

1.1 Intro from interviewer

Practical information and rights

• Audio recording
• Rights
• Possibility for anonymization
• Publication
• All information is deleted from my machine after the task is delivered

Brief repetition of master thesis topic

Explanations of terms and concept can be found in the end of the document

1.2 Intro: Person and company

• Can you briefly introduce yourself, the company and your role?
• Your background

Development

• Are customers offered the same product now as during the start-up?

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Phase 2: Main part

2.1 Network effects

Positive cross-side network effects

• Do you experience this effect on your platform?

• Have you facilitated for network effects in any way?
• Considerations/ thoughts?
• Importance and knowledge of the network effect term

Positive same-side network effects

• Do you experience this effect on your platform?

• Have you facilitated for network effects in any way?
• Considerations/ thoughts?
• Importance and knowledge of the network effect term

Negative network effects

• Do you experience negative consequences with an increasing number of users?

o Unserious actors?
o Too much noise?
o More difficult to match?

Strategy, awareness, activity

• How aware have you been of network effects when establishing your platform?
• Do you see it as a competitive advantage?
• Strategic planning aimed directly at facilitating network effects?
• Do you have methods to keep users active on the platform?
• Strategies for network growth?
• Methods to attract customers and lock them to the platform?

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Openness

• Has it been challenging to balance the supply and demand side of the platform?
• Entry barriers?
o Frictionless entry versus strict screening process
• Curation of the platform

2.2: Monetization

Monetization models (freemium, premium, subscription, etc.)

• What pricing model or strategy do you use?

• Has the monetization strategy been the same since the beginning?
• Experienced problems or negative feedback with the pricing?
• Thoughts on monetization of platforms/multiple sides?

Differential pricing/subsidies

• Do you subsidize any sides of the platform?

• Do you offer free trial period?
• General experiences or challenges when it comes to pricing?

Monetization’s relationship to network growth/effects

• Has monetization of the platform disturbed the growth of network?

• Conscious relationship to the “monetization” challenge?
• Completely other aspects than pricing/monetization which is more important to allow
network effects?
• Experiences/ thoughts?

2.3 Chicken and egg problem (who to recruit first? And how?)

• How and which side of the platform did you attract first?

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Phase 3: Ending

Open questions

• Do you have general experiences that may be relevant to the topic?

• Something you want to add?

Explanation of terms

Network effects:

Network effects are the effect an additional user or service has on the value of a platform for other
users. They can be "same-side" or "cross-side" and positive or negative.

Positive network effects: Refers to the ability of a large, well-managed platform community to
produce significant value for each user of the platform.

Negative network effects: Refers to the possibility that the growth in numbers of a poorly managed
platform community can reduce the value produced for each user.

Same-side network effects: Participants on the same side of the platform create value for each other
(producer for producer - or user for user). This means that a new user of the platform actually creates
value and a more efficient experience for existing users. Thus, this dynamic provides free value
creation to the company as long as you get new customers. Customers create value for each other
only by participating (Internet, gaming communities, YouTube, etc.)

Cross-side network effects: Participants on different sides of the platform create value for each other.
Uber is a classic example of positive cross-side network effect. More riders and drivers, means that
wait time falls for riders and downtime falls for drivers. Less downtime means that uber can cut
fares and stimulate even more demand.

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8.2 APPENDIX B: CONSENT TO THE PROCESSING OF PERSONAL DATA

Learnlink

77
Graphiq

78
Plaace

79
Poption

80
Hygglo

81
Parqio

82
Snapmentor

83
Hyre

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8.3 APPENDIX C: SURVEY

8.3.1 STATEMENTS

0: Disagree, 3: Neutral, 6: Agree

85
86
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8.3.2 QUESTIONS

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8.4 APPENDIX D: COMPANIES CONTACTED

Company Responding Participation No participation

Learnlink X X

Snapmentor X X

Plaace X X

Poption X X

Parqio X X

Graphiq X X

Hygglo X X

Hyre X X

Vipps X X

Nabobil X X

Tise X X

Kahoot X X

TikkTalk X

NyBy X

WeClean X

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Finn X

Facebook Norway X

Speiz X

uWork X

90