guide to multi-sided platforms
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“The new hot startup model !is being an exceptional middleman”
Quartz
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reduce search costs reduce transaction costs!
making audiences
SupplyMulti-sided PlatformDemand
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Chicken-and-egg problem.
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The supply side won’t engage until there is sufficient volume on the demand side, and vice versa. Also
known as “cross-side network effects”. !
Whether it’s is a chicken-and-egg or a chicken-or-egg problem depends on whether participation adjusts more rapidly downward toward equilibrium or upward.
How can you overcome this challenge?
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1. Focus on one niche target group.
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2. Create sufficient (high quality) inventory.
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3. Create demand.
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4. Add more supply.
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High barriers to entry.
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If you can successfully attain cross-side network effects, you will hopefully have a privileged position in
your market; having created high barriers to entry. !
A cautionary note: attention should be paid to switching costs and whether or not the demand side can easily participate in multiple MSPs within the same market.
Even without fixed costs or economies of scale, MSPs typically need to attain critical mass when they are launched
in order to even survive.
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A viable multi-sided platform. At the prices
chosen, there are many individuals, on both sides, that want to participate. G
is the globally stable equilibrium.
Schmalensee (2010)
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A non-viable multi-sided platform. At the prices chosen, no matter how the
MSP is launched, there will be too few individuals on either side of the
market with low values of Ω. !
This scenario is common. Simply because lots of ideas for MSPs are
not attractive to one or both sides of the market to be viable at prices that
cover cost, no matter how they are launched.
Schmalensee (2010)
Thanks, let me know if you found this useful!
@ScottTaylor
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