The Cold Start Problem: How to Start and Scale Network Effects

by Andrew Chen

As I’ve discussed earlier, launching a new network often requires subsidies for the hard side, which are paid back over time. These might be structured as up-front payments to content creators and influencers, to get them to participate on the platform. For example, when Microsoft introduced a new livestreaming service to compete with Twitch, it guaranteed Ninja, a streamer with millions of followers, a deal worth tens of millions. Elsewhere, in the streaming content world, there is an ongoing multibillion-dollar battle between Netflix, Hulu, Amazon, and others to sign exclusive content for their subscription content services. As they build up a base of subscribers, aggregating niche audiences compelled by teen horrors, international documentaries, and more, they are able to more efficiently support the up-front funding of content. This can become a huge advantage that increases over time as the networks get bigger.