Dissertation: Internet Startups Try to Solve the Chicken-and-Egg Problem with Wrong Methods
According to the doctoral dissertation by Joni Salminen, Internet startups face several interlinked problems: the solution to one problem soon leads to another. For example, lack of user-generated content and the introduction of fees for services that were previously free of charge can cause trouble for startups. The study offers various possible solutions to challenges faced by companies.
In his dissertation in the field of marketing, Joni Salminen examines strategic problems of early-stage Internet platforms. In this study, platform is defined as a place of interaction, in which technology is employed to connect different user groups. According to Salminen, there have been relatively few studies on strategic problems of early-stage Internet platforms, even though some of them, such as Google, Facebook and Tinder, have demonstrated exceptionally rapid growth.
According to the study, problems emerge when the platform has trouble matching suitable users or contents with each other. To solve this problem, the company may take decisions that in turn compromise its future.
- The probability of failure increases unless the company recognizes the problems in time, identifies how they are connected, and applies the right solutions. For this reason, it is crucial to understand the nature of these dilemmas in order to be successful in platform business, Salminen states.
Cold Start Problem and Lonely User Dilemma
Salminen particularly examines four problems that are typical for internet startups: cold start problem, lonely user dilemma, monetization dilemma, and remora's curse.
Lack of user-generated content is the principal issue in the cold start problem. With no content, new users have no incentive to join the platform.
On the other hand, a lonely user may have already joined the platform, but is unable to use it because there is no-one to interact with at a given time or place. For example, if there are no other users present in a chat service, the platform is useless.
The monetization dilemma occurs when a company offers free access and usage to attract users to a platform. According to Salminen, this is done at the expense of economic viability. Lack of profits may lead to the introduction of fees, which in turn may cause the users to abandon the platform.
In remora’s curse, early-stage problems have been solved by integrating the platform into a larger platform.
- In exchange, the startup becomes vulnerable to the strategic behavior of the owner of this larger platform, Salminen says.
A Roadmap to Aid Strategic Planning in Startups
Salminen’s dissertation shows that strategic problems of early-stage Internet platforms are interconnected. Salminen also extensively examines possible solutions in the dissertation: he discusses 19 different strategies to solve the above-mentioned dilemmas. These include acquiring funding, improving marketing skills and partnering.
The study offers a dilemma roadmap that companies can use as a tool for strategic planning.
- There is no single right solution; instead, solutions are developed by solving each interlinked problem in a manner that takes the big picture into consideration.
The dissertation emphasizes the need for a holistic approach to platform problems also in academic research.
- Previous studies have concentrated on larger companies, exchange platforms, and pricing as a solution to the chicken-and-egg problem.
The principal material of the study consists of 29 stories of startup failures. Additional data include interviews and discussions conducted at numerous startup events in Finland, Sweden, and the USA over the four year research process.
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Joni Salminen publicly defended his doctoral dissertation “Startup dilemmas - Strategic problems of early-stage platforms on the Internet” at the University of Turku on Friday, 7 November 2014. The opponent was Professor Daniel Beimborn from Germany (Frankfurt School of Finance & Management) and the custos Professor Rami Olkkonen from the University of Turku.
M.Sc. (Econ. & Bus. Adm.) Joni Salminen was born in 1985 and graduated from Mynämäen lukio (upper secondary school) in 2004. He completed his Master of Science (Economics and Business Administration) degree at Turku School of Economics in 2009. His dissertation is in the field of marketing.
Picture of the doctoral candidate: https://apps.utu.fi/media/vaittelijat/salminen_joni.jpg
The dissertation can be bought from: KY-Dealing Oy, tel. 02 333 9422, email info@ky-dealing
The dissertation is available online: https://www.doria.fi/handle/10024/99349