Business Platforms


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Business Platforms

  1. 1. Business Platforms Peter Troxler
  2. 2. …Platform… The earlier uses of the word, such as for a plane geometrical figure, the ground plan of a building, and figuratively, for a plan, design, scheme, &c., are now obsolete. a raised flat structure or stage, (…) from which speeches, addresses, lectures, &c., can be delivered. Similar structures are used in railway stations to have easy access to the carriages; and in fortification the word is used of the raised level surface on which guns are mounted. Photo © 2008, Martin L aka EuroMagic, cc-by 2.0 Encycloædia Brittannica 1911
  3. 3. …Platform… Photo © 2009 by Mike Baird, cc-by 2.0 Photo © 2011 by Creative Tools, cc-by 2.0
  4. 4. …Platform…
  5. 5. Business Platform •  an intermediary between two or more sides of a market (Wikipedia) •  Two-sided market = –  two distinct user groups –  provide each other with network benefits •  Examples: credit cards: cardholders and merchants; HMOs: patients and doctors; operating systems: end-users and developers; travel reservation services: travelers and airlines, hotels, etc.; –  yellow pages: advertisers and consumers; –  video game consoles: gamers and game developers; –  communication networks –  –  –  – 
  6. 6. sumers want producers before either prefers a new format. An incumbent firm producing content for one format probably does not welcome entry by a competing firm producing similar content if there is no profitable exchange between them. This mitigates a network effect within one side of the market. Buyers in the end-consumer market, however, welcome entry to other content-providing firms if effective consumer demand rises instead of falls. Consider, finally, a third participant, the focus of our attention here, who produces tools to support both content creators and end consumers. These are “platform” intermediaries. Examples in Table 1 include Sun, Apple, and Microsoft, who support software developers as well as private and business More Examples Table 1 Two-Sided Market Examples Product category Market 1 Intermediary Portable documents Credit cards Operating systems Plug-ins Ladies’ nights TV format Broadcast & publishing Document reader Consumer credit Complementary applications Applications software Men’s admission Color UHF, VHF, HDTV Content Computer games Auctions Academic journals Recruiting Reservation systems Shopping malls Streaming audio/video Paid search Stock exchange Home real estate Game engine/player Buyers Articles Applicants Travelers Shoppers Content Searchers Equity purchasers Home buyers Adobe Issuing bank Microsoft, Apple, Sun Microsoft, Adobe Bars, restaurants Sony, Phillips, RCA Magazine publishers, TV, radio broadcasters Ubisoft, ID, valve, electronic arts E-Bay, Christie’s, Sotheby’s Management Science Expedia, Travelocity, Orbitz Mall of America Real audio, Microsoft, Apple NYSE, NASDAQ Real estate agents Market 2 Document writer Merchant processing Systems developer toolkits Systems developer toolkits Women’s admission Broadcast equipment Advertisements Level editors Sellers Author submissions Employers Hotels, airlines, rental cars Stores Servers Marketers Listed companies Home sellers Notes. This table shows how one side of a two-sided network market receives a discounted, free, or even subsidized good (indicated with ). In general though not always, Market 1 can be interpreted as the user/consumer market and Market 2 can be interpreted as the producer/developer market. We provide a test for which side receives the free good below. Parker and Van AlstyneElectronicTwo-Sided Network Effects Management Science 51(10), pp. 1494–1504 (2005): copy available at: available online at
  7. 7. Business Platform 1 2 Platform
  8. 8. Network Effect Value of the Network (Metcalfe’s Law) Vj = n2 * p V: Value of Network n: number of participants (nodes, end points) p: some constant (Beckstrom’s approach) Vj = ∑i,j(∑Bi - ∑Ci) V: Value of Network j ∑B: benefit value of all transactions ∑C: cost of all transactions Illustration by Derrick Coetzee
  9. 9. *>*+4?*# 304# 4@3?;=4*# %5# %;49<=%%;# *>*+4?*&# J39D*# ;3># 544*# +%# A41%?4# ?4?A40*)# A/+# 04?3:9# 5044# +%# 12%%*4# +24:0# ;0:1:96# ;%=:1># 3*# 046307*# 13072%=740*#397#?401239+*&# Pricing !"#$%&'9')':/&6)+,,/'-0-1&2' *,6-$2&%>-'856? @AB ;&%<=561>-'856? @CB aB aS .0:14 % " *,6-$2&% 7 I%??:**:%9 4502&61'-0-1&2 3 ./0123*4 %5#3#6%%7 %& ;&%<=561 3 Verdier, M. (2006). Retail Payment Systems: What can we Learn from Two-Sided Markets? MPRA Paper No. 2606. Available at: http:// 2606/ #
  10. 10. Pricing Price +∆V VA (1-σ) VA NU +∆U +∆U Quantity Parker, G., Van Alstyne, M (2005). Innovation Through Optimal Licensing in Free Markets and Free Software. Woprking Paper. Available at: Figure 2: A fraction, σ, of the original platform value, VA is made freely available, leaving direct platform profit of (1 − σ) VA . Opening the platform permits developer enhancements, which add