Cloudonomics: The Business Value of Cloud Computing, + Website

Markets

If the patterns just discussed are exemplified by communications networks, a different pattern is perhaps exemplified by eBay or Amazon. Rather than all endpoints communicating with each other, a cloud-based marketplace can be divided into buyers and sellers that interact only between groups, not within.

This situation occurs not only when people are engaging in commercial transactions involving goods and services but in other contexts: those seeking romance at Match.com, recruiters and job seekers at Monster.com, or content providers and customers. Traditional bilateral structures are giving way to peer-based “prosumer” ones (where participants can be both producers and consumers), but even there participants often can be categorized: Although anyone can upload content to YouTube, most just view it.

As we saw earlier, when there are n communicators, the number of point-to-point connections is n(n − 1)/2, but the number of connections to a hub is just n. When there are m buyers and n sellers, the number of direct connections is m × n, whereas a market requires only m + n connections.

When there are quite a few buyers and sellers, there is a dramatic difference between the two functions. Suppose the number of buyers equals the number of sellers. Then m = n and the number of direct connections would be n2 whereas the number of connections to a market would only be 2n. The larger n gets, the larger the advantage that a market confers. This inherent advantage is worth paying ...