Article Strategies for two-sided markets (Eisenmann et al., 2006)
4 important questions on Article Strategies for two-sided markets (Eisenmann et al., 2006)
Platforms = Products and services that bring together groups of users in two-sided networks
- Platforms provide infrastructure and rules that facilitate the two groups’ transactions
and can take many shapes.
- In some cases, platforms rely on physical products: as with consumers credit cards and merchants’ authorization terminals.
- In other cases, they are places providing service:, like shopping malls or Web sites such as Monster and eBay.
Two-sided networks differ from other offerings in a fundamental way. In the traditional value chain, value moves from left to right: To the left of the company is cost; to the right is revenue.
In two-sided networks, cost and revenue are both to the left and the right, because the platform has a distinct group of users on each side
➢ The platform incurs costs to serve both groups and can collect revenue from each, although one side is often subsidized
Network effect = platform’s value to any user largely depends on the number of users on thenetwork’s other side
➢ Value grows as the platform matches demand from both sides.
➢ Because of network effects, successful platforms enjoy increasing returns to scale. Users will pay more for access to a bigger network,so margins improve as user bases grow.
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Yet for all the potential they’ve spotted, platform providers have struggled to establish and sustain their two-sided networks. Their failures are rooted in a common mistake:
- Managers have relied on assumptions and paradigms that apply to products without network effects. As a result, they have made decisions that are inappropriate for the
economics of their industries.
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