Strategies for Two-sided Markets

Strategies for Two-sided Markets

Group 8SM II (A)Anshul Sehgal(01)Arijit Chakraborty(06)Chandan Kumar Behera(74)

Products and services that bring together groups of users in 2 sided networks are PlatformTraditional Value Chain

Modern Value ChainLeftRightValueLeftRightValueSellers demandValueBuyers demande.g. Video game

3Acquiring cost is high

Diminishing ReturnModern NetworkTraditional Network Can charge premium as user base grows

Increasing return of scaleMore in R & DCompetitive AdvantageHigher MarginsPlatform Leaderse.g. SMSe.g. Wtsapp3Challenge 1: Pricing the platformMore the subsidy side users , more the money side users will payPresence of more money side users makes the platform attactive to subsidy side usersCross side network effectsUsers on any one side are increasedThis draws more users to that sideSame side network effectsCapture same side network effects

Factors to be considered in pricingFactors to be considered in pricingChallenge 2 : Winner take all DynamicsPlatform CompetitionDeciding whether to fight or share the platform

Whether the market is destined to be served by a single platform

Multi-homing cost is highAdaption, opportunity coste.g. MicrosoftDifferentiated Platformse.g. American ExpressNeither side users have a strong preference for special featuresSingle platformConverge of platformse.g. Software ProgramNetwork effects are strongDVD industryTotal Market Size will increasee.g. facebookRivalry tends to less intense due spend on marketingBenefits of Sharing NetworkPre-existing relationships with prospective users

e.g. PDFWar of attrition,deep pockets matter

e.g. SBI

Reputation from the past prowess

e.g. MicrosoftWinning the BattleSecond Mover AdvantageFirst Mover AdvantagePositive word of MouthBenefit from the pioneerings engineering errorE.g. Google copied from Overtures paid listing modelSupport of complex customer service interactionsBust of Valuation cyclesMistakesWinning the Battle cont.Challenge 3: The Threat of Envelopment

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