Eisenmann et al. (2006) "Strategies for Two-Sided Markets
18 important questions on Eisenmann et al. (2006) "Strategies for Two-Sided Markets
What are two-sided markets/two-sided networks?
How do two-sided networks differ from the traditional value chain?
When does value grow?
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What are the three challenges for managers that don't know how to deal with network effects and therefor make inappropriate decisions?
- Pricing the platform
- Winner-take-all dynamics
- Threat of envelopment
Why is pricing the platform a challenge?
What is the subsidy side?
What are cross-side network effects?
What is the challenge for the platform provieder with pricing power on both sides?
Why is winner-take-all dynamics a challenge?
Coping with platform competition is a two-step process
- Executives determine whether their networked market is destined to be served by a single platform
- When this is the case, deciding whether to fight or share the platform - is a bet-the-company decision
What are the three conditions applied when a networked market is likely to be served by a single platform?
- Multi-homing costs are high for at least one user side
- Network effects are positive and strong - at least for the users on the side of the network with high mult-homing costs
- Neither side's users have a strong preference for special features
What do homing costs comprise?
Why share a network when proprietary control promises monopoly profits once rivals are vanquished?
- The total market size will be greater with a shared platform. During a battle for dominance in a two-sided network, some users will delay adoption, fearing that they will be stranded with obsolete investments if they back the loser.
- Since the stakes are so high in battles for network dominance, firms spend enormous amounts on upfront marketing. Rivalry tends to be less intense with a shared platform, reducing marketing outlays.
To win the battle a firm needs cost or differentiation advantages. Which other 3 assets are important in establishing proprietary control?
- PrePreexisting relationships with prospective users
- Reputation for past prowess
- A lot of money (deep pockets)
Why is the threat of envelopment a challenge?
What is the only solution? (in many cases)
What does the threat of envelopment mean?
Why are focused firms not without advantages when competing with large, diversified companies?
- Big firms can be slow to recognize envelopment opportunities
- Big firms can be even slower to mobilize resources to exploit them
- Envelopment requires cross-business-unit cooperation which is a significant barrier in many diversified companies
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