The movie promo for “The Social Network” screams “You Don’t Get to 500 Million Friends without Making a Few Enemies.” I haven’t seen it yet but I’ve heard that the film suggests that Mark Zuckerberg stole the idea for Facebook. That’s hardly a novel charge against innovators. The tech press couldn’t get over Bill Gates’ success either. He was regularly portrayed as just making money off of other people’s ideas.
This brings me to a stark point: There are lots of great ideas out there, but precious few entrepreneurs who can turn great ideas into successful businesses. If we lined up all the people that tried to start social networks (or had that same idea), Zuckerberg would be standing in a line that wraps well around the block. We know there were several reasonably successful sites before Facebook-Six Degrees of Separation, Friendster, and MySpace are the best known. But we also know from experience that there were probably hundreds more that tried but simply vanished, leaving no trace for history. I guess, though, “You Don’t Get to 500 Million Friends without a Killer Ignition Strategy” wouldn’t get me a job as a Hollywood screenwriter.
Much the same story is true for Bill Gates. There were surely hundreds of people writing operating systems and starting computer companies in the late 1970s and early 1980s but their names are lost to history. What Gates figured out was the secret to igniting the personal computer revolution. Microsoft’s strategy involved promoting inexpensive computer hardware and making it easy for developers to write many applications that ran on that hardware.
Zuckerberg and Gates were masters at executing ignition. They are fabulously wealthy because of these rarest of rare skills.
Entrepreneurs with “great ideas” for multi-sided platforms routinely fail because they haven’t figured out how to reach critical mass. The contactless card was a great idea. Waving instead of swiping saves time. It made a lot of sense for transit properties seeking to provide a payment instrument that helped maximize the through-put of passengers especially during rush hours. But contactless has been a debacle in the United States and the reasons are instructive. MasterCard and Visa made significant investments to encourage the growth of contactless in the United States, persuaded several of their issuers to follow along and issue millions of contactless cards, and talked a few large merchants into taking them.
This was a really botched ignition strategy. Many of us wish we could see the internal decks and management consulting tomes that suggested this could work since it would help bring transparency to the sources of the “wet match” problem with ignition strategies. Consumers didn’t care much about using the card since it didn’t save them much time at most merchants; that was especially true if they weren’t buying something cheap (i.e. under $25) because they still needed to sign – thus nullifying the whole idea of “saving time.” Merchants weren’t interested in spending money on upgrading their equipment either because consumers didn’t care enough to get them extra sales. With so few merchants taking contactless, consumers never got into the habit of learning to and/or wanting to use them much, further adding to the malaise. All the hype that was poured onto contactless by the networks and assorted research and consulting firms couldn’t get around the fundamental problem that there was wasn’t enough extra value being created for the participants in the platform to ignite it. That doesn’t mean that contactless was destined to fail. But igniting this technology would have required either developing killer applications that consumers and merchants could only use with contactless or a lot of applications that collectively brought value. The failure of contactless in the United States so far was no more inevitable than the failure of Microsoft’s Windows operating system for mobile after a decade of effort and billions of dollars. Apple figured out a way to get a lot of users and then used that base of users to get lots of applications. And remarkably Google followed with an approach that-oh no, theft of an idea, time for a movie!-basically copied Gates’ approach to dominating the PC operating system business.
The B2B exchanges that sprouted up by the hundreds in the late 1990s and underwent mass extinction in the early 2000s are the other interesting example of failed ignition strategies. The B2B proposition sounded like a great idea: provide buyers and sellers a convenient internet-based place to find each other and transact. The entrepreneurs behind these exchanges almost all failed to work through a sensible ignition strategy for reaching critical mass. An exchange can attract sellers only if there are enough buyers to do business with and can attract buyers only there are enough sellers to do business with. Critical mass refers to having enough buyers and sellers to satisfy each other’s needs. Otherwise the market is “too thin” and not enough value is generated. This sounds simple but in fact in practice it is hard to get sellers to sign on to an exchange: these exchanges emphasized the use of auction methods to get the best price for buyers, but for sellers, that meant getting their prices competed down. The few surviving B2B transaction networks eventually discovered that they had to bring suppliers on for free at least initially. Most learned that lesson way to late. The failures had adopted the wet match approach to ignition: open the platform and assume that people will come.
The payments landscape is littered with businesses that had “great ideas” but couldn’t reach critical mass. That begins with the hundreds of payment brands that started in the 1950s but quickly went under. Looking forward I suspect that a number of the mobile payments startups in the United States will fall victim to the wet match problem. Sort of a great idea, cool technology that makes it possible, but no ignition plan.
Perseverance pays off of course in many parts of life. Unfortunately, it usually doesn’t with multi-sided platforms. A clock starts ticking when a new platform opens its doors as I will explain next time. Just like a rocket has to build up enough momentum to escape gravity within a defined period of time, so a platform has to reach critical mass quickly enough. That’s all the more reason every multi-sided platform business-and certainly every payments business-should start life with an ignition plan. It’s amazing how few really do.
David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass. Click here to contact David Evans.
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