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What is a penguin problem and what can you do about it?

Why is it that potential customers are hard to make buy from you and sign up for your service? Obviously, there can be many reasons for that. One useful way to analyze this is to consider the five attributes affecting the speed of people adopting your innovation, which you can read more about here. Another possible reason is that most people don’t want to sign up for something before they see that other people do so. This scenario is known as “excess inertia” or the “penguin problem”12.

What exactly is the penguin problem?

The problem is strongly present in businesses where the likelihood of one user signing up depends on the number of other users who have signed up or are expected to do so.

Dating apps provide a good example. You are not likely to join a dating app (especially if you have to pay) if you can’t expect other users to join it too. If you have a good reason to expect a lot of other users to join the network, you are more likely to join yourself.

At the same time, the whole potential user base of a dating app like Tinder might be large and fragmented making it difficult for you to realize whether others actually will sign up for the service or not. Your expectations and intentions are hard to communicate, and coordinating behavior of the potential user base is almost impossible. So most likely, you will choose to wait that others make the first move. At the same time, others will do the same and wait without signing up. This means that no one moves unless everyone moves, so no one moves.

Like penguins standing together as a large group at the shore, each one hungry but not willing to dive into the ocean for fish in the fear of getting eaten by a shark. No one wants to go first, which may ultimately lead the whole group to waste a great opportunity.

So how can you make users to join your network instead of them waiting for others to join first?

Solutions to the penguin problem

There are several solutions to the penguin problem that can be used both individually and in combinations. I discuss five of the individual solutions here. You can:

  1. Increase standalone value of the platform
  2. Use penetration pricing
  3. Communicate the “big goals” of the platform
  4. Provide backward compatibility
  5. Serve neglected user groups

Increase standalone value

First, by increasing the standalone value of the platform, you can attract new users regardless of how many users you already have on either side on the platform (like in the chicken and egg problem). Standalone value refers to the value of the service without assuming any network effects, that is, users’ additional value gained from other users participating. For example, Instagram provides its users with the option to share their content also on Facebook. Hence, users might want to join Instagram even if they don’t have a large network of followers there.

Use penetration pricing

Second, you can use penetration pricing to attract new users who would be unlikely to join among the first at your standard price for the service. For example, you can let the first 1,000 users join free, give every new user a 50% discount for their first year, or offer free products for users who recommend the service to their friends. These are all common strategies for social media platforms and ride sharing services.

Make visible upfront investments

Third, by making visible upfront investments and communicating your big goals to potential users, you show that you are serious about creating something that might solve their problem. This raises their expectations about the platform’s success in attracting other users.

Provide backward compatibility

Fourth, backward compatibility might be a good solution if your platform involves technological updates. It means that the current version of the platform accepts data and applications from earlier versions of the platform. For example, Playstation gamers were extremely happy to hear that Playstation 5 will be backwards compatible, meaning that older games could be used with it. This made large numbers of old and new users to buy Playstation 5.

Focus on neglected user groups

Fifth, by focusing on serving neglected user groups, you may be able to attract a relatively large number of new customers as they may not have as many options as the users of the more commonly targeted groups. For example, Grindr, a dating app geared towards gay, bi, and transsexuals, quickly became a worldwide hit for users that had been underserved compared to heterosexuals.

Conclusion

The penguin problem is network-related issue where no one wants to be a first-mover and everyone is waiting for someone else to make the first move so that others can follow. This problem may lead to a slow adoption of a platform, or eventually, a failed platform.

While there are several solutions to the penguin problem, it is never easy to make large crowds to sign up for a service. Also, different crowds show different behaviors in terms of speed of adoption and effective marketing criteria. If you’d like to read more about these crowds, click here.


References

1Farrell, J. & Saloner, G. 1986. Installed base and compatibility: Innovation, product preannouncements, and predation. The American Economic Review, 76(5), 940-955.
2Eisenmann, T. 2007. Platform mediated networks: Definitions and core concepts. Harvard Business School Module Note.

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