How Airbnb, Uber solved the chicken-egg paradox and become the most valuable unicorn Startup?

“The internet is becoming the town square for the global village of tomorrow” [Bill Gates]

The tremendous development of Internet and digital technologies at the end of 90s, has led to big changes in people lives. It is well known that internet increased exponentially the interactions between people in worldwide basis, passing from offline to online environment. This has been possible by the fact that many platforms such as Google, Facebook and Twitter have risen and quickly dominated technology users’ everyday lives, creating new job types and business opportunities.
In literature, Evans (2009b, p.1) define the concept in the following way: “Platforms serve distinct groups of customers who need each other in some way, and the core business is to provide a common (real or virtual) meeting place and to facilitate interactions between members of the two distinct customer groups.”.
Many shades of the term “platform” appear, and used it in several different contexts since the ‘90s, referring, among others, to the telegraph, telephone, radio, television and computer (Cusumano, 2010).

Moreover “60 of the world’s 100 largest corporations earn at least half of their revenue from platform market”. (Eisenmann, Parker and Van Alstyne, 2011)

From the point of view of enterprises in this business sector, they embraced the transformational power of platforms with the possibility of capturing new growth opportunities and changing the way they do business. Driven by the new rules of business, “platform business models represent the most profound disruptive change in the global macroeconomic environment since the Industrial Revolution.” (Accenture Technology Vision 2016)
While tech and born-digital organizations have been dominating the digital economy with record-high market caps, non-tech digital leaders across all industries are developing platform strategies now. The strategic use of technologies to create platform business models is driving unprecedented growth opportunities in the rapidly expanding digital economy. In the figure 1 the economic growth of this world is illustrated. The “82% believe platforms will be the ‘glue’ that brings organizations together in the digital economy.” (Accenture Technology Vision 2016)
This important and big change has led to see in a different way the traditional market and the transactions linked.

Thinking about Uber and Airbnb, two platforms that have grown tremendously in recent years. Back in 2004, Airbnb. com received funding for a $10 billion rating, which means it's worth nearly 20 times its revenue and it's even more valuable than Hyatt Hotels or Wyndham Worldwide. Nowadays Airbnb.com, already one of the more estimate private tech companies in the United States, just closed another $1 billion round of funding, pushing the valuation of the lodging and travel company up to $31 billion. Uber, the taxi-replacement service, probably will reach a value of $68 billion in 2017.
The growth and the value of the abovementioned platforms is incredible. The valuation history of unicorn startup chart (figure 2) shows that Airbnb and Uber were the two cases with the highest value since the second quarter of 2015.

In the sharing economy world, Uber match drivers with consumers through an app and Airbnb is a trusted community marketplace for people to list, discover, and book accommodations around the world through online and mobile channel, they match two different groups of agents and they are two-sided markets.

Two-sided markets are “markets in which one or several platforms enable interactions between end-users, and try to get the two (or multiple) sides ‘on board’ by appropriately charging each side” (Rochet and Tirole, 2006, p.645).

The economic literature studied a lot this market structure (e.g. Rochet and Tirole, 2003; 2006; Evans 2003; Rysman, 2009), and the management community started to pay a huge attention more recently (e.g. Evans and Schamlansee, 2016; Muzellec et al., 2015; Trabucchi et al., 2017). Indeed, this market structure has great opportunities, but hide also big challenges. Among the others, to let a two-sided market flourish the platform operator needs to get users from both sides on board (Caillaud and Jullien, 2003), but it is not enough to reach one of the two sides, because in doing so it’s necessary to have someone else on the other side, but to get someone else on the other side it is necessary to have users, otherwise is difficult to convince them to be on board.

In literature, this challenge was defined as: “chicken-egg” paradox. (Caillaud and Jullien, 2003).
Consequently, the aim of my thesis project is the identification of how a platform provider can overcame the paradox and let the business flourish.

This thesis aims at explaining how a platform provider can overcome the chicken and egg paradox and letting a two-sided platform flourish.
Both in terms of time and importance, overcoming the paradox marks the turning point for setting up the business.

For this thesis project, it has been necessary to identify an empirical environment that can facilitate the action of connecting two different types of users and let two-sided platforms flourish. This feature has been found in the world of applications, in fact the typical two-sided platform is characterize by the presence of an app as an intermediator between the two sides.
Through the analysis of 22 cases it has been possible to discover which are the tactics implemented by different platform providers, comparing them and define the time frame in which it is preferable to apply one rather than other based on the characteristics of the service and platform.

Tactics discovered, steps to be taken to overcome the paradox and what tactics need to be implemented on the basis of service and side features, are the managerial contributions.

Regarding theoretical contributions this thesis provides that overcoming the paradox consists in dealing with more than one step and how, over time not only the value preposition but also tactics decision-process change.

Afterwards, the limits of the research project will be analyzed in order to pointed out which are the starting points for future researches.