Strategic Decisions for Multisided Platforms

Book description

Multisided platforms (MSPs) are technologies, products or services that create value primarily by enabling direct interactions between two or more customer or participant groups. Prominent examples of MSPs and the participants they connect include eBay (buyers and sellers), Airbnb (dwelling owners and renters), the Uber app (professional drivers and users), Facebook (users, advertisers, third-party game or content developers and affiliated third-party sites), and Ticketmaster (event venues and consumers). As these examples illustrate, MSPs include some of the largest and fastest-growing businesses of the past decade. Why? Successful MSPs create enormous value by reducing search costs or transaction costs (or both) for participants. As a result, MSPs often occupy privileged positions in their respective industries; most other industry participants revolve around and depend on MSPs in important ways. This article begins with a description of how MSPs work and why they can erect such high barriers to entry for new participants. It then offers an analysis of four fundamental strategic decisions and associated trade-offs that set MSPs apart from other types of businesses and that every MSP entrepreneur and investor should carefully consider. These challenges are as follows: •the number of sides to bring on (deciding whether to bring on two or more); •design (ensuring the interests of the different platform sides are not in conflict with each other or the MSP); • pricing structures (determining which platform side or sides should be charged more, based on the groups’ relative value from interacting with each other); and • governance rules (regulating the participation and activities undertaken by the various platform sides to ensure a high level of quality, or outsourcing that function to users through ratings systems). After examining the factors that drive each of these decisions and using real-world case examples, the author presents general principles that apply to both startups and incumbent MSPs.