Solving the Chicken and Egg Problem in Network-Effect Sites

A network-effect site is one where the more people you have joining the site, the more people you will have joining the site. Sites such as Facebook, YouTube, Flickr, Linked-in etc. Or even sites like iStockPhoto or eBay where the more sellers you have the more buyers you are likely to have. Or games like Farmville which tend to attract users simply because it improves the gaming experience for existing players (earn more points, have neighbors etc.)

Once setup well, such sites are dream cash machines and throw off cash at an increasing pace with minimal increases in costs. But the challenge lies in the initial stages when you are trying to get the network off the ground. You run into a chicken and egg problem ... i.e. without anybody being there, it's hard to entice everybody else to join.

Here are 5 ways to crack the chicken and egg problem ... i.e. to get the initial base of users using the system on a committed basis. The first method is not personally palatable to me ... but are legitimate ways of building a network-effects based business.

1. Porn / Piracy and the promotion of illegal activities or content - Several sites and technologies such as Scribd, Napster, Pirate Bay etc. got their initial viral explosion through these methods.
2. Provide a new technology - for example, YouTube initially provided a new way for people to share their videos without worrying about video formats and conversions.
3. Provide unique seed content - One can also kick-start such a site by offering initial seed content that draws traffic which in turn attracts other content owners and creators. For example - justin.tv started out as a place where one person (Justin) was broadcasting his life. At some point after garnering enough interest they allowed others to start their own lifecasts and the site solved the chicken and egg problem.
   
4. Start from a niche and expand - Another method is to start from a niche area and expand. The niche could be geographic or topic specific.