Management Information Systems

2. Structuring your business as a
marketplace may seem attractive, but
it’s often a recipe for failure.
- Andrei Hagiu & Julian Wright

3.  Most companies serve as intermediaries between
buyers and sellers
 They face a fundamental strategy decision –
 Act as Multisided Platforms (MSP) ?
 Act as Resellers ?
 Act as a blend of both models ?

4. MSP
HybridReseller

5. Connects buyers
and sellers
Non
Proprietor
Low cost &
high margins

6. High demand
products
Acquire and resell
products
High cost &
low margins

7. MSP for low
demand products
Reseller for high
demand products
Low cost and
high profits

8.  Aim is to create maximum value
 Determining whether more or less control is
required over buyer-seller transaction, depends on
1. Scale Effects
2. Aggregation Effects
3. Buyer and Seller Experiences
4. Market Failures

9.  Large reseller sells high demand products more
efficiently than small resellers
 Resellers capitalize on economies of scale in –
Purchasing, infrastructure investment, delivery etc.
 These advantages don’t apply to low-demand products
 Some companies operate as
 MSP – low demand products
 Reseller – high demand products

10.  Resellers do better than MSPs when products get
higher value when bought together
American
DTH service

11.  Exploit complimentary relationship between products
 Different sales model within a company
MSP Reseller
App Store iTunes

12.  MSPs create value by matching buyer with seller
 Resellers are preferable if one side doesn’t want to deal
with multiple agents
 There is a need for good seller experience
 This leads to shift in sales model

13. • Heavily reliant on shoe manufacturers
that stored inventory and fulfilled
customer orders
• Buyers wanted to come back if offered
good retail experience
• This led Zappos to build own warehouses
and interact with customers directly

14.  Marketplaces collapse because of –
 Product quality uncertainty
 Reliability between sellers and buyers
 Many MSPs have solved this problem
 Feedback system instituted for sellers and buyers
 Such mechanisms are however insufficient
 Move closer to Reseller model to have control over
transactions.
Platform where house
and apartment owners
rent rooms to complete
strangers

15.  MSPs cant address cases when one side has bargaining
advantage over the other.
 Hence weaker party doesn’t participate
 Reseller model can help solve this issue
 E.g. IV sells patents from universities/small companies
to large companies

16. •CATCH-22 PROBLEM
•LIMITED CAPITAL

17.  Starting out as Resellers is a good option even if MSP
model is the best for your start-up
 Because ‘Buyers will not join your marketplace if you
don’t have enough sellers and vice-versa’

18. Attracted
independent
sellers
Established
buyer and
consumer base
Started as a
Book reseller

19. • Reseller model is aim
• Capital is an issue
Limited
Capital
• Good interim solution
• Low capital & operating cost
Operate as
MSP
• When capital is enough to
operate as a Reseller
Transform
into Reseller

20. China’s largest electronics retailer

22.  Emerging marketplaces are displacing Resellers
 MSPs have become powerful with rise of internet
 Easy for buyers and sellers to interact
 eBay are replacing collectible stores
 Amazon’s Kindle is challenging book publishers
 All resellers are not disrupted by MSPs, e.g. Li & Fung
Limited

23. • World’s leading middleman
for fabric apparel
• Functioning as a Reseller
since 1906
Company
• Power to obtain lower
prices from suppliers
• Make faster deliveries
• Help suppliers utilize their
capacity
Advantages
over MSP

24.  Resellers are challenging established MSPs
 Established MSPs create opportunities for Resellers to
aggregate demand and supply in specific markets
 Offer better experience for a segment on either side of
market

25.  MSPs have emerged as most powerful business model
 Don’t overestimate its attractiveness over Resellers
 Carefully choose the sales model
MSP Reseller