Telcos and cable TV companies are used to solving chicken-and-egg problems. It is a problem they always face when building a new network or introducing a new service requiring customer purchase of new edge devices, and will be true of many 5G services.
Recall two old examples: facsimile machines or phone services are more valuable as the number of people using those devices and services grow plentiful. It’s a network effect, where the value of the network grows with the number of users.
Chicken and egg strategy problems occur whenever the value proposition to two separate groups is dependent on adoption by the other. Developers will not have great incentives to create apps using 5G network capabilities until the network is substantially built out. Neither will potential users emerge until the apps and services are available.
That is doubly true when network effects exist, where few suppliers mean few potential customers, but incentive to increase supply is quite low because there are so few customers.
Every next-generation communications network represents that sort of problem, and connectivity providers must always bet on the chickens. The network must be built; the investments made, before customers can buy.
Some might note that there are a few time-tested ways to create value in the early going. One tactic used by connectivity providers is the “slow and steady” approach, building incrementally, on a geographic basis, neighborhood by neighborhood, and marketing to those neighborhoods as each new segment of the network is built.
Mass media marketing tends to be problematic in such cases, as touting the new service or app actually creates problems when customers are not yet able to buy. A historically useful tactic is neighborhood marketing, rather than reliance on “mass” techniques such as television or radio advertising.
Many business services specialists use the same approach, building specialized networks in business parks or downtown cores, or building out to specific buildings, and then marketing only to those locations. Multi-city service providers often start in one city first, then expand to other areas.
The “jumpstart” approach, useful when competitors are eyeing the same market, relies on shortcuts, such as leveraging another partner that already has a big customer base. It might seem odd that Google once used Netscape or Yahoo to gain entry into the search engine business, but that is what Google did.
Etsy found that the people most likely to buy products on Etsy were those who also sold products on the site. This essentially turns the problem of satisfying two sets of marketplace participants into a single set, essentially.
Likewise, Google created the Open Handset Alliance as a way of competing with Apple’s IoS ecosystem.
A more expensive option is to subsidize consumption, as Uber did with discounted rider offers and driver payments.
Service providers often partner when entering new markets, to build scale faster. That can mean use of channel partners, alliances with application providers, content or device suppliers to build scale faster, using existing customer bases to promote new apps and services.
In other cases, some unorthodox way must be found to fulfill early transactions, before full-fledged systems can be built.
Amazon made and fulfilled its own sales until it had enough volume to create the Amazon Marketplace, where it now acts to assist third parties in making their own sales. Airbnb used Craigslist to build its volume.
Connectivity providers often rent or lease before building their own facilities, or use makeshift systems before at-scale in-house solutions can be created.
Another approach might be to build one sort of business, adding to that initial business with other services or products, once the first is established. Some might point to Square, which started out offering low-cost credit card processing services for small businesses, but now operates several different businesses related to payroll, point-of-sale systems, e-commerce platforms and business loans.
Yelp arguably did the same, beginning with information listings, and then gradually building an advertising business once scale was obtained.
Another tactic is to focus on getting high-value users or customers onboard early, to attract others. OpenTable and Uber often are cited as having used that tactic.
5G is just one more instance of connectivity providers having to solve a chicken-and-egg problem.
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