The “ladies’ night” strategy

Many singles bars have “ladies’ night” where women are offered price discounts. Singles bars do this for women but not for men because (heterosexually-focused) bars are what economists call two-sided markets – platforms that have two distinct user groups and that get more valuable to each group the more the other group joins the platform - and women are apparently harder to attract to singles bars than men.

Businesses that target two-sided markets are extremely hard to build but also extremely hard to compete against once they reach scale. Tech businesses that have created successful two-sided markets include Ebay (sellers and buyers), Google (advertisers and publishers), Paypal (buyers and merchants), and Microsoft (Windows users and developers). In some cases individuals/institutions are consistently on one side (buyers and merchants) while in other cases they fluctuate between sides (Ebay sellers are also often buyers).

In almost every two-sided market, one side is harder to acquire than the other. The most common way to attract the hard side is the ladies’ night strategy: reduce prices for the hard side, even to zero (e.g. Adobe Flash & PDF for end-users), or below zero (e.g. party promotors paying celebrities to attend). Rarer ways to attract the hard side is 1) getting them to invest the platform itself (e.g. Visa & Mastercard), and 2) interoperating with existing hard sides (e.g. Playstation 3 running Playstation 2 games).

If you are starting a company that targets a two-sided market you need to figure out which side is the hard side and then focus your efforts on marketing to that side. Generally, the more asymmetric your market the better, as it allows you to market to each side more in serial than in parallel.

http://www.contentmatters.info graubart

Good post.
I always thought that analyst research service First Call (now part of Thomson Reuters) did a great job of this. They set it up as a partnership with Thomson owning 51% and a consortium of sell-side research firms owning the remaining 49%. That gave them exclusive rights (at the time) to deliver that research to the buy-side, who paid for access. The sell-side firms paid for the rights to deliver their research through the platform.
Interestingly, this seems almost the reverse approach. The hard audience to get here was the buy-side. But by inking the sell-side to exclusive deals, they got the attention of the buy-side.
http://www.gamechanger.io/ Kiril

This really hits close to home. Exactly the kind of market we’re staring at with GameChanger (scorekeepers and fans), and exactly how we’re attacking it. What baffles me is how many smart people don’t see it this way: why not rustle up scale on the easy side first?

http://jasoncrawford.org jasoncrawford

It’s not just that one side is harder to acquire. That side also has the power. I wrote about this in the context of software marketplaces and platforms:

“A software platform is a bipartite network of developers and users, with classic bipartite network effects: Developers want their apps to have the most users possible; users want the platform with the most/best apps. In many (all?) such networks, one side dominates and controls the network; the other side follows them and often pays all the costs of the matchmaking. Sellers go where the buyers are. Companies spend tens of thousands of dollars per hire to get the best candidates. Men go to the bar or dating site with the most interesting women.

“I’m not sure what determines which side of a network will dominate. It doesn’t seem to be based on which direction the money is flowing (or whether there’s money involved at all). I suspect it’s based on how many matches each side is looking to make, and how fungible they consider the other side to be. In commerce, in particular, each buyer is looking to buy one or maybe two cars, let’s say, and the decision matters a lot to him, whereas each dealer is looking to sell many cars, and doesn’t care so much whom he sells to—all dollars are the same.”

http://jasoncrawford.org/2009/12/does-user-experience-or-developer-experience-drive-platforms/
http://www.aaronkharris.com akharris

We’re in the same sort of scenario at tutorspree – it’s easier to pull in tutors than it is to pull in students. But it’s not a question of smart or dumb, it’s a question of making sure your sellers (our tutors) understand the longer term nature of the marketplace buildup. We’ve had people call us anxiously to find out when they’re going to start seeing students, and others who have dropped out of communication as we engage in the long slog. We’re trying to communicate with them as much as possible, but it’s a tough process, especially when you have hundreds of people on one side based on the idea itself and are still building the actual product .

But we prefer that problem, which will allow us to display a high quality set of sellers when the first buyers show up rather than having no “stock” when the first buyers come to find someone to help them learn algebra.

http://www.gamechanger.io/ Kiril

This really hits close to home. Exactly the kind of market we’re staring at with GameChanger (scorekeepers and fans), and exactly how we’re attacking it. What baffles me is how many smart people don’t see it this way: why not rustle up scale on the easy side first?
http://www.hypedsound.com jonathanjaeger

Exactly. Problem with that strategy is that you’ll end up with scale, but a lot of unhappy users/customers. For example, if you find people willing to give services for a price, they’ll not want to go to the hassle of submitting info to a site that won’t ever have anyone respond.
http://www.cdixon.org chris dixon

won’t you end up with a bar full of men (so to speak)?

http://www.gamechanger.io/ Kiril

Yes- and if we go back to the web, you’ll see an early spike that only lasts as long as the illusion that the other side of the market is on the way. That wears out fast.

I suppose the only valid argument is that if a critical mass of “guys” can create a pull for “girls”, then it’s a high risk strategy but can work. In the bar metaphor it’s clear that a lot of guys has the opposite effect: it scares the girls away. Back to web again, and you have branding problems where group A starts to think your site only caters to group B. Etc.

http://raywu.tumblr.com/ Ray Wu

In such a scenario, would it not be in your best interest to stack up on the easy side with high quality bachelors? If the barrier is low to acquire the easy side, with a little incentive you would get a good portfolio, and thus attract the hard side.

I know this is highly hypothetical for the web-world: you cannot discriminate against eyeballs but you can probably set the entrance barrier higher. Anyone knows if there are businesses that have been successful in doing this? Maybe Gilt Groupe (discounted luxury goods and buyers)

http://www.gamechanger.io/ Kiril

The problem here is that the “hard” side is hard exactly because you can’t
just lure them in with numbers, at least initially.

I know a bit about the beginnings of Gilt (we shared an office at the time).
First, they had to have some brands (the hard side) signed on in order to
have anything to sell to their consumers. The early brands weren’t as
high-profile as the ones they routinely sell for now, but they were good
enough to get buyers in.

The kicker, though, along the lines of what you’re talking about, was a
second step. They used the early-adopter brands to bring enough demand in
that they were then able to lure the larger brands onto the platform- but
even then, it wasn’t the pure volume of users, but the specifics of how Gilt
was able to control the brand experience and move low-inventory items that
did the work.

http://www.cdixon.org chris dixon

great example. the consortium / investor approach seems most common in financial service. liquidnet also comes to mind.
Pingback: Tweets that mention The “ladies’ night” strategy cdixon.org – chris dixon's blog -- Topsy.com
http://infochimps.org @mrflip

There’s a great Harvard Business Review article on two-sided markets. The short free version http://hbr.org/2006/10/strategies-for-two-sided-markets/ar/1 but the long $$ version is worth it: http://hbr.org/product/strategies-for-two-sided-markets/an/R0610F-PDF-ENG

Jason Cohen also has a great article on the problems of the marketplace business model, with a lot of concrete advice on how to attack them: http://blog.asmartbear.com/marketplace-business-model.html

http://www.graduatetutor.com Senith @ MBA tutor

Thanks for the additional material on this topic. We have this issue in an online model we are trying to figure out!
Marco Fisbhen

They’re both great articles! Thanks for sharing!

Marco Fisbhen

Chris, do you think that an online education/UGC startup would be a good fit for the model?

In this case, instead of sellers and buyers we would have teachers and students.

If you can get a critical mass of teachers producing quality content, it would be “natural” that a pretty good number of students would “follow”.
http://www.cdixon.org chris dixon

absolutely.
http://www.cdixon.org chris dixon

yes, great stuff. I learned a lot from them.
Anonymous

Isn’t it true that in a buyer-seller marketplace the buyers are ‘harder to acquire’ side, since sellers are almost always looking to sell (at nearly any given moment to nearly anyone with currency) where as buyers are only sometimes ready to buy? So, to continue with the analogy of the bar, would it be fair to say that the females are the buying group and the sellers are the male group at the bar.

http://www.cdixon.org chris dixon

I don’t think that’s always the case. For example, in ad networks I think getting it tends to be that getting base of advertisers (sellers) is easier than getting publishers (buyers), since there are so many advertisers who are willing to pay standard rates for, say, remnant advertising space.

http://twitter.com/mbeckett Miles Beckett

Actually, I would argue that the advertiser is the BUYER in this case. They’re buying the audience that has formed around the publisher’s content. The publisher is the SELLER because they’re selling their audience to the advertiser. This is why we talk about advertisers “buying” attention or reach, and it’s also why most advertising is sold on a CPM, CPC, or CPA basis. All of these metrics are a proxy for the “unit of audience” that an advertiser is buying from a publisher.

In the case of building an ad network, or any advertising-based media company, you’re acting on behalf of the publishers you represent by facilitating the sale of their audience to advertisers (the buyers). It’s challenging signing up publishers, particularly “high value” publishers who are capable of building large audiences around their content, because they are rare and can be picky about who they sell to and who they work with to facilitate the selling of their goods.

So, not unlike pretty girls at a singles bar, you need to woo the publishers. If you have the publishers, who in turn bring the audience, the advertisers come out in droves.

http://www.cdixon.org chris dixon

Sorry – my mistake. I agree advertisers are buyers and publishers sellers
(of ad inventory).

Anonymous

Really interesting. Thanks for the insight.
http://www.facebook.com/davhad David Haddad

Chris, like your thoughts. What do you mean by the last paragraph: the more asymmetric the market, the more members from each side can be targeted serially? An example would be great.

http://www.cdixon.org chris dixon

well, let’s say you are doing real estate rentals in NYC. getting rental
listings is much harder than getting renters to browse. because of this
asymmetry, you can focus first on getting some liquidity on the landlord
side and then focus on the renter side as opposed to having to do both at
once.

http://www.victusspiritus.com/ Mark Essel

Glad to see you blogging here again Chris.

In the specific case of web companies that leverage 1) user generated media and 2) visitor attention we can see two sides. Make it easy and fun for users to generate content and they’ll help find you visitors. A twitter share of “hey look at this comment I left on Chris Dixon’s blog” automated through disqus is on example.

The tough part is implementing something compelling enough that people will pay for. Experienced folks talk about a pain point, problem or emotional response. It can take a while to latch on to a “hard problem” that represents who you are.
http://bothsidesofthetable.com msuster

Love the analogy. And I’m sure it some cases it’s a great way to get people into the system.

As you’d expect not all markets work well with this strategy. We had a marketplace architects and construction suppliers. We incentivized the architects to come on and specify products hoping it would get the suppliers using the product. Since not enough suppliers were only the architects grew frustrated. We similarly tried to chain contracts to sub-contractors. We got the largest contractor in Germany to give us their database and help us get their sub-contractors online. Again, we got plenty to the table but since not enough contractos big projects only the subs grew frustrated.

I think the strategy can work well but equally getting small amounts of volume on both sides and proving the processes for how people will interact is important before brining too many people in.

Interestingly I saw a company at TC Disrupt that actually paid women to log in and play video games with men. I guess they’re literally trying your strategy! I don’t love the idea – feels like Geisha girls meets video games. But we’ll see.

http://twitter.com/thatdrewgilliam Drew Gilliam

Hey Mark,

To your point ‘small amounts of volume on both sides’ is where my startup HaveMyShift.com is currently at with building our two sided market. But we constantly have an uphill battle to face with getting an equal amount of buyers as we have sellers. I’d love to know your thoughts on how to equalize the number of buyers in the hourly shift market.

Pingback: Specific Media Buys Video Ad Network BBE; Like-ing Display; WSJ’s What They Know Looks At Facebook User ID Targeting
http://twitter.com/subbu4 subbu arumugam

This is a phenomenal post, and the comments are equally awesome. Mr Dixon, your thoughts clearly and concisely articulate what we’ve learned by experience over the past three years. We’ve put considerable time and resources attempting to bring together two distinct groups, failing at every turn. However, the past 6 – 8 months have been spent working on building deep traction with just one of them, and once we crack that nut, we will re-engage the second group… whose members should be much more interested in participating when they see how engaged the first group is… I wish you wrote this post 3 years ago!
http://twitter.com/bookabillboard Book-a-Billboard

Great analogy, Chris. We are building a marketplace for buyers and sellers of outdoor media and experience this issue firsthand.
Marc Bush

I just read this piece on OpenTable (http://bit.ly/dpJzib) shortly after seeing this blog post and thought that it was highly illustrative. OpenTable brings together restaurants and diners, and fits the framework you’ve described (a big network effect with scale, the dominant market player with no formidable competitors, and below-zero pricing to diners – through loyalty points program, subsidized by the fees charged to restaurants).

Though the article is largely anecdotal and just one data-point from a restaurateur, one interesting takeaway is OpenTable’s huge leverage on pricing to restaurants. OpenTable succeeded in forming a relationship with diners that supersedes their relationships with individual restaurants (through points and convenience), which is extremely valuable. The flip side is that restaurants feel like they’re held hostage.
http://www.twitter.com/biggiesu Mike Su

The other thing to recognize is the negative corollary – if you have a bar full of heterosexual women but no men, they are probably still likely to come back. If you have a bar full of heterosexual men but no women, those dudes will probably not come back anymore. So worst case scenario for Ladies Night is that it actually turns into Ladies Night, which is as advertised.

So Ladies Night is really the perfect fit for this type of user acquisition strategy. If you fail to recognize the negative corollary, then you may have attracted the harder-to-get user group, but they may hate that it’s a giant sausagefest, and decide never to come back.
Style

Interesting. Neil Strauss says the best strategy on Ladies Night consists of peacocking and lots of negging.

Degustibus.
Pingback: Havas Media Lab » Disruption Landscape - 10/20/2010
Anonymous

A good post. We have been working with a marketplace ourselves and came to the conclusion that the best solution is the following: you create a product which would be useful to the hard side irrespective whether the easy side is present or not. So in the ladies night it would involve e.g. free manicure when you buy a margarita or whatever, so that a lady doesn’t really care if the men show up. But then of course the men show up, because there are plenty of ladies. A slightly worse way is to find a distribution platform for one of the sides, for instance in ladies night flattering pictures are taken of the ladies and broadcasted in all the pubs in the city (there are better examples), so as a lady you choose that particular bar to get the widest distribution, and attract the other side – the men – to the bar as well.
Pingback: Aaron Johnson – Links: 10-21-2010
Pingback: Is Freemium just another name for the “LADIES’ NIGHT” strategy « excapite
http://twitter.com/lascenestr LAScenester

If you can start a business filling the needs of the ‘harder’ side first…then everything else will only be easier in my opinion. And you’ll have less competition. Especially if you zone in on what your audience Actually wants rather than just thinking logically and being biased in what you or your industry thinks the audience wants.

I actually run a business based on playboy level hot girls at the club in costume serving shots… not because i like nightlife or clubs or girls… but because it was just what people-girls and guys-wanted as ‘tacky’ as it may be.
If you have the hard side down and start with a one sided market the other side should be easy to add on if you want to do a two sided market I would think anyways.
So Agreed!

PS I also view it as websites that start a. focused on the look of the site versus b. focused on the marketing/seo The traffic is harder to get. It seems a lot of websites don’t do as well because they start focused on factors beyond the hardest part-traffic/users. At least from what I’ve experienced
Pingback: cdixon.org – chris dixon’s blog / The “ladies’ night” strategy | Small Business Marketing Two
Usama

Innovative strategies can keep your business up and running
Pingback: Resources for creating 2 sided networks / businesses / marketplaces | YakShaving
Pingback: cdixon.org – chris dixon's blog / The “thin edge of the wedge” strategy
Pingback: Worth it to compete with a website?
http://shanacarp.com/essays ShanaC

What happens when you add a third (I think there are a couple of startups in ny with this problem)
Pingback: Visa, Google, Foursquare, StackOverflow... are all two-sided businesses. What is the "magic element" that makes this kind of business very succesful? - Quora
Pingback: Thin Edge of the Wedge
Pingback: “女士之夜”策略 | 老羊的博客
Pingback: How to build a lean startup
Pingback: How dating websites bring in the ladies! | Platforms and Two-sided Markets
Pingback: 10 Months running need help and guidance (Debt, depression, losing faith)
Pingback: How to Solve the Chicken-and-Egg Problem » Jesús Gil Hernández
Pingback: Feedback - I have an idea I think has real potential. Am I wrong? - Page 2

Chris Dixon