Multi-Sided Platform Markets

VA in Multi-Sided Platform Markets

• Platforms facilitate and govern exchanges between distinct user groups
• Interactions are now often possible through digital platforms

Key Platform Concepts

• Open architecture: Allows diverse user types to participate, add value, and innovate in a standardized way
• Facilitates participation and value addition
• Governance: Platforms establish rules, provide infrastructure (technology), and determine pricing
• Functions as an interface (middleman) for smooth interaction
• Interactions: Platforms enable value-creation exchanges with finer grain than simple ones
• Helps create meaningful exchanges, collaboration, and innovation

Two-Sided Market Examples

• PC Operating systems: Software developers on the supply side, PC/phone users on the user side
• Real estate: Home sellers on the supply side, home buyers on the user side
• Auctions: Sellers on the supply side, bidders on the user side
• Recruitment: Employers on the supply side, job seekers on the user side
• Credit cards: Merchants on the supply side, card holders on the user side
• Text processing: Writers on the supply side, readers on the user side

Subsidy and Money Sides

• Subsidy side: Attracts users with incentives
• Encourages participation to build a user base and create network effects
• Example: Uber riders receive discounts to use the service
• Money side: Pays for access or services, generating revenue for the platform
• Crucial for revenue generation and business model sustainability
• Example: Drivers pay a commission to Uber

Platform Types

• Based on the type of exchange, ownership, supply/demand side exclusivity
• Type of exchange: Products (shopping malls) or Services (credit card)
• Ownership: Proprietary (eBay) or Open (Android)
• Supply side exclusivity: Exclusivity (The Voice), Mixed (game consoles), or Open (Facebook)
• Demand side exclusivity: Exclusivity (dating sites) or Open (most online platforms)

Platform Characteristics

• Open architecture with governance rules, designed to facilitate interactions
• Operates in two- or multi-sided markets and benefits from network effects
• Open architecture: Allows distinct user types to participate, add value, and innovate in a standardized way
• Governance: Provides infrastructure, rules, pricing, interface for different user groups
• Interactions: Facilitates value-creation exchanges in a finer grain

Platform Purpose and Benefits

• The goal is to get sides 'on board' by charging appropriately and optimize interaction to capture value
• Benefits include convenience, greater selection, transparency, and price competition

Two-Sided vs. One-Sided Markets

• One-sided (pipeline): Value moves from left to right. Cost on the left, revenue on the right
• Two-sided (platform): Facilitates exchanges, incurring costs and serving two groups, where one side may be subsidized

Relevance of Platforms

• Platforms dominate in size, strategy, and impact
• Two-sided business models dominate a majority of the revenues of the world's largest companies
• Marketplaces took a sizable percentage of elecommerce in 2021

Network Effects

• Same-side and cross-side effects are critical
• Strategies differ from traditional business due to network effects
• Focus is on creating more user value rather than selling products

Same-Side Effect

• Increasing users on one side affects value for users on the same side
• Positive example: More gamers enable more friends to play online
• Negative example: More developers may increase competition

Cross-Side Effect

• Increasing users on one side affects value for users on the other side
• Positive example: More developers attract more gamers with quality games
• Negative example: More TV viewers attract more advertisers

Platform Growth

• Platforms grow quickly due to positive cross-side network effects
• Gamers value consoles based on the availability of video games
• Developers value consoles based on the market potential or gamers

Scalable Business Model

• Platforms benefit from scalable business models
• Demand economies of scale facilitated by digital technology
• Microsoft operating system and Facebook are examples

Lean Business Model

• Resources shared by external users
• Inverted firms shift production to external contributors like: Airbnb and Alibaba

Value Creation and Capture

• Platforms and their complementors depend on each other for success
• Coopetition involves collaboration and competition
• Coordination is more complex than traditional ties

Leverage

• Use resources you don't own, so platforms should utilize resources on one side to benefit users on the other side
• Platforms struggle to capture value due to prioritizing network growth over monetization
• Complementors deal with value dependency and power asymmetry

Competition as a Platform

• Critical to get pricing right to compete
• Subsidy side attracts users, while money side generates revenue

Winner-Take-All Dynamics

• Copy with winner-take-all(WTA) dynamics
• Avoid envelopment

Dynamics for Platforms

• Platforms more likely to have single platforms
• Multi-homing costs are high
• Strong and positive same and cross-side network effects create lock-in
• Share if a single platform market is likely and keep proprietary if confident in winning

Chicken-and-Egg Problem

• It's important to Overcome the chilling network effects
• During the battle for dominance in two-side markets, users may delay adoption
• Network effects can drive rapid growth or create the chicken-and-egg problem

Platform Openness

• The extent to which a platform allows external users/customers/suppliers to participate

How to Avoid Envelopment

• Changes to business model
• Find partners with a bigger brother
• Take legal action and break antitrust laws

Competing Against Platform

• Create your own platform and coalesce with competition

Platform Nature

• Platforms have a dual nature with ethical and societal implications
• They can both Exploit value , democratize access, and foster innovation

Value Based Strategy

• It should be based on key Stakeholder governance for responsible innovation
• It should emphasize Responsible innovation and social impact

Value allocation

• Three main points
• Creation by organization
• Appropriation for value
• Distribution of value

Value creation & responsible innovation

• Main drivers for responsible innovation include motivations to reduce negative externalities/ enhance positives one
• Traditional innovation usually focus on profit and customer demand while responsible innovations solves societial problems
• Responsible innovation means value creation is measured at a societal level

Global Wealth Disparity

• Increase in modern technologies increases awareness of social challenges

Stakeholder types

• Can be categorized by power attributes (Coercive, Utilitarian and Normative)
• Unintended: High coercive power, but low utilitarian and normative power
• Intended Are directly involved, such as empowered , enfranchised and entitled stakeholders