How World's biggest Networked product was born?
We look at a problem and think that it is too difficult to be solved. Let me take you through a problem which in hind sight looks really really difficult to solve. I recently got to read the story of how VISA was born. Its maiden name was BankAmericard.
This is a two sided problem -
We need to have enough and more credit card users to create demand
We need to have enough merchants accepting the credit card for the demand to be catered
Once, we have liquidity on both sides then we have a well oiled machine wherein all the participants are extracting value from the system.
But similar to any marketplace/platform - It is a chicken and egg problem. If we get demand first (issue credit cards) then they wont have any supply (shops accepting cards) and wont get any value.
And without demand - how do we get supply on board.
Lets see how Bank of America solved this problem
Credit Cards were invented by Bank of America. But they also faced the same problem. How to get the network kickstarted?
So, how did they achieve the same.
They were a big bank so they already had a big customer base so what did they do. They chose a market (Fresco in California) where they had the highest penetration of customers (density of network matters). They had a 45% penetration there so every 1 in 2 adults in Fresco was a customer of BoFA.
Step 1:
There were 60K customers in the city and they sent an unsolicited credit card offering 300 USD credit to each one of the customer through mail.
What matters here:
BoFA’s penetration was 45% in that city so 45% of the city’s population had a credit card
And all of these people got access to the credit card on the same day.
Card was offering 300 USD credit so it was very useful if a sizable number of merchants accepted it
Step 2:
Now, how did they build supply on the merchant’s side:
Here, also they played smart - they knew that 45% of the population would have a credit card in next N days. So what did they do about it?
They went to the local merchants in the most Shopping dense area in the town - downtown. BoFA did not reach out to big brands/stores like Sears as there would be a lot of bureaucracy there. They went to mom and pop stores and onboarded them.
Positive: Easier to convince
Negative: Need to mobilize a large number of shops, But then BoFA had muscle
Stores got onboarded to get access to this big user base who can now buy items worth up to USD 300 on credit
So in a nutshell, what happened
On demand side - everyone got access to Credit at once. You and your neighbors, Your family, your friends - and everyone is talking about the same
And more importantly, wherever you are going to shop - this credit is being extended to you there.
And hence the loop began.
BoFA saw huge traction on this model and it was replicated to more cities within the next year.
Credit cards turned profitable by 1961 and in 1977 this Netowrk was rebranded as “VISA”
And this is how - it was born
Out of the lowly “Cold Mailing” :)