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Business platform
1) Business platforms act as intermediaries that facilitate interactions between two distinct user groups to provide network benefits to both sides. 2) Examples of business platforms include credit card networks connecting cardholders and merchants, operating systems connecting software developers and end users, and video game consoles connecting gamers and game developers. 3) Platforms generate network effects, where the value of the platform increases with the number of participants on both sides due to increased potential connections and transactions between the groups.
Business platform
- 1. Business Platforms Peter Troxler
- 2. …Platform… Encycloædia Brittannica 1911 Photo © 2008, Martin L aka EuroMagic, cc-by 2.0 a raised flat structure or stage, (…) from which The earlier uses of speeches, addresses, the word, such as lectures, &c., can be for a plane delivered. geometrical figure, Similar structures are used in the ground plan of railway stations to have easy a building, and access to the carriages; figuratively, for a and in fortification the word is plan, design, used of the raised level scheme, &c., are surface on which guns are now obsolete. mounted.
- 3. …Platform… Photo © 2009by Mike Baird, cc-by 2.0 Photo © 2011 by Creative Tools, cc-by 2.0
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- 5. Business Platform • anintermediary 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. sumers want producersbefore either prefers a new to other content-providing firms if effective consumer format. demand rises instead of falls. An incumbent firm producing content for one for- Consider, finally, a third participant, the focus of mat probably does not welcome entry by a com- our attention here, who produces tools to support More Examples peting firm producing similar content if there is no both content creators and end consumers. These profitable exchange between them. This mitigates a are “platform” intermediaries. Examples in Table 1 network effect within one side of the market. Buyers include Sun, Apple, and Microsoft, who support soft- in the end-consumer market, however, welcome entry ware developers as well as private and business Table 1 Two-Sided Market Examples Product category Market 1 Intermediary Market 2 Portable documents Document reader Adobe Document writer Credit cards Consumer credit Issuing bank Merchant processing Operating systems Complementary applications Microsoft, Apple, Sun Systems developer toolkits Plug-ins Applications software Microsoft, Adobe Systems developer toolkits Ladies’ nights Men’s admission Bars, restaurants Women’s admission TV format Color UHF, VHF, HDTV Sony, Phillips, RCA Broadcast equipment Broadcast & publishing Content Magazine publishers, TV, Advertisements radio broadcasters Computer games Game engine/player Ubisoft, ID, valve, electronic arts Level editors Auctions Buyers E-Bay, Christie’s, Sotheby’s Sellers Academic journals Articles Management Science Author submissions Recruiting Applicants Monster.com Employers Reservation systems Travelers Expedia, Travelocity, Orbitz Hotels, airlines, rental cars Shopping malls Shoppers Mall of America Stores Streaming audio/video Content Real audio, Microsoft, Apple Servers Paid search Searchers Google.com Marketers Stock exchange Equity purchasers NYSE, NASDAQ Listed companies Home real estate Home buyers Real estate agents 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: http://ssrn.com/abstract=1177443 available online at http://ssrn.com/abstract=1177443
- 7. Business Platform 1 2 Platform
- 8. Network Effect Value ofthe 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. *>*+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? ;&%<=561>-'856? @AB @CB aB aS .0:14 I%??:**:%9 " 4502&61'-0-1&2 % 3 %& ./0123*4 %5#3#6%%7 *,6-$2&% ;&%<=561 7 3 # Verdier, M. (2006). Retail Payment Systems: What can we Learn from Two-Sided Markets? MPRA Paper No. 2606. Available at: http:// mpra.ub.uni-muenchen.de/ 2606/
- 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: http://ssrn.com/abstract=639165 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