How SEA tech giants solved the "cold start" problem

Sep 27, 2021 Marketing Community

 

The Cold Start Problem – also known as the "chicken and egg" problem – describes a paradox found in two-sided business models:

Your business only works when you have both supply and demand. But when you start, you have neither, and to get one, you need the other.

In this post, we'll look at how tech companies in SEA solved their cold start problem, successfully navigating the supply and demand paradox to become household names in the region.

But first, credit where it is due. This article is a mashup of two posts: Cheng Zishuang on how famous SEA companies got their first 1000 users, and Lenny Rachitsky's analysis on how to kickstart a marketplace business.

 

For most businesses, supply is the first problem

Supply problems are more common because most marketplace startups are attempting to introduce a new operating model to their industry.

The reason the startup came into being is that they identified pent-up demand from consumers aching for a better solution.

However, to capture that demand, they have to educate and convince the supply side to buy into their new model first. This usually means lots of human effort, relationships, and persuading people to take a chance on a new way of doing things.

We can see that when we look at how companies in SEA kickstarted supply in their early days:

 

Grab knocked on taxi windows to onboard drivers

Grab's early days were marked with intense competition with Uber. Recognizing that driver supply and availability were critical to keeping users coming back, the Grab team leveraged their hyperlocal knowledge for driver onboarding.

They would go to auto repair garages to convince taxi drivers to download their app:

“Uncle gives us a chance lah, your income is sure to increase!” Mr. Tan recalls saying. “We were begging,” he says. “Maybe out of 10 drivers I pitched, two would agree to try it.”

Even though Uber also had teams on the ground, the Grab team always had an edge when it came to the local context. For instance, they realized that natural gas petrol stations in SEA were disproportionately visited by taxi drivers: In Malaysia, the Philippines, and Thailand, the taxis use natural gas, so we have counters set up in petrol stations that sell natural gas.

 

Gojek started as a dispatch for motorcycle taxis

Another way to solve the cold start supply problem is by having one foot in the old operating model, then migrating everyone over to your new paradigm:

Initially started, as a call center in 2010, Nadiem Makarim was able to bring efficiency to the process of Ojek (motorcycle taxis) riders and customers by using a call center to reduce waiting times. In 2015, when they launched the app to pent up demand, the rest was history.

Having relationships with relevant industry players in "old guard" also helps you sidestep opposition from entrenched interests and potentially suffocating regulation, both of which Gojek successfully avoided.

 

How to solve the demand problem

Startups operating within an existing paradigm can expect demand to be the primary constraint.

That's because there's usually a base of suppliers who know the rules and will play ball – as long as there are buyers. Therefore, when facing a demand constraint, there's an emphasis on getting to scale as quickly as possible.

Let's see how these SEA companies rapidly grew demand on their marketplaces:

 

Tokopedia spreads the word with PR

E-commerce in Indonesia was a small, but rapidly growing industry when Tokopedia launched in 2007. A lot of buying and selling was still centered around online classifieds, setting the stage for e-commerce marketplaces like Tokopedia and Bukalapak.

Unlike Bukalapak, Tokopedia needed to get brands and large retail merchants onboard. One of their key demand levers was to make a splash in the media, which they did very early in their life:

On the second day of its establishment, Tokopedia was visited and featured by Tempo Magazine, one of the media in Indonesia.

 

Lazada and the Rocket playbook: PR and digital marketing at scale

Lazada spent most of its early life being labeled "yet another clone" created by the Rocket team, this time a copycat of Amazon. While I'm sure the Lazada team found this grating to hear over and over, it made their value very easy to communicate to potential stakeholders and suppliers.

Trace the path of any Rocket company and you'll find the same playbook in the beginning: make a splash with a big launch that drums up PR and media, then keep the momentum going with digital marketing.

Lazada entered SEA by launching in 5 markets simultaneously. Then they rode the PR and media wave of how they were a SEA company taking on Amazon.

When it comes to their digital marketing efforts, there's not much writing out there about what they specifically executed, but I suspect it's because it was mostly ads. This quote from their CMO gives us a glimpse.

We positioned Lazada’s brand and quickly increased our market share within new product categories. We were able to increase ad impression share by 50% within a newly competitive market, which resulted in an overall increase in traffic of more than 30%.

 

Recap: Solving the cold start problem

Here's what we've learned from these stories:

If you're introducing a radically new operating model to the industry, your primary constraint will be supplied. You'll use high-touch tactics to onboard sellers. You'll need to go where they are or tap into existing networks, then manually onboard them to make sure they're good representatives of your platform.

If you're competing within well-understood industry dynamics, then you'll be constrained by demand. You'll use tactics with high scalability. This could take the form of owning digital marketing channels where you have an unfair advantage, riding the wave of a media narrative, or localizing wider and faster than anyone else.

 

The challenge of Southeast Asia

A final lesson not explicitly mentioned here is that the solving Cold Start Problem is already hard, but even harder in a fragmented market in Southeast Asia.

Solving it in one country doesn't necessarily give you a tailwind to set up in another country, even if those countries are neighbors or can speak the same language. And when you think you've got it nailed, your market can suddenly turn into a red ocean.

For these companies to leave an indelible footprint in Southeast Asia, they'll not only need to prove that they can solve the cold start problem in multiple countries, but that they can keep evolving with an ever-changing region.

This is an article from APAC Marketers, written by David Fallarme.