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Network Effect and Cold Start Problem. Tinder and YouTube Examples
The network effect increases the value of a network as it grows, making it increasingly defensible for platforms like Tinder when there is a large user base. Startups often face the cold start problem at the outset, needing to attract initial users to overcome the initial lack of engagement. This dilemma highlights the challenge akin to the chicken and egg scenario. The concept differentiates between multiplayer networks, which require many users to create value, and tools that provide utility for individual users, irrespective of a large audience. YouTube exemplifies a successful strategy where it initially functioned as a tool, allowing users to upload videos for free and embedding links on personal websites, proving valuable despite a lack of initial traffic. This tool-centric approach facilitated their growth, ultimately leading to the emergence of a robust video network. Subsidizing early users was crucial in this strategy, as platforms raised funds to cover initial costs, fostering user engagement until a critical mass was achieved. Once momentum built, users shifted from personal websites to YouTube, driving up its popularity.
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