Friday, June 22, 2007

Multi-sided Platforms for Business or Software

The paper about Multi-Sided Platforms published by Andrei Hagiu sparked my thoughts about technology platforms vs market platforms and how they relate to each other. Two sided markets of buyers and sellers are most efficiently brought together via a platform, for example the stock market is a platform which has been replicated globally. I think most impressive about the stock market is first it was a platform which leveraged people, and now one driven by technology.

A market platform strives to gain economies of scale the more which is driven through the platform the more you reduce cost. Andrei's paper talks about both reducing the search cost and transaction cost. The paper does not go deeper to understand which software platforms/frameworks can best be used to drive down search and transaction costs. I would suggest the foundation for building a market platform based on technology would have to start with some form of middleware. I however think this can be used to look back in time to consider the market dynamics of J2EE, .NET, Corba, and IMO continues to plague the scripting languages vs structured languages (maybe perception, but none-the-less).

What I learned from Andrei's article is that providing a typical platform which offers economies of scale is only considered a single sided platform. Single sided platforms are business as usual, you sell a product and leverage a platform by which to sell this in greater scale.

A TWO sided (and specifically I refer to a two sided market) builds a platform which aims for economies of scale and positive indirect network effects. The latter to me is more buyers more sellers, more sellers more buyers and a big giant snowball from there. The stock market, Amazon, and your local supermarket are two sided markets. They bring product X to consumer Y in a market place. Technology geared towards two sided markets include the Integration Platform and Enterprise Services Bus (Producer and Consumer).

A multi-sided market (to me) is "something Z" interacting with "product X" delivered to "consumer Y. An example... Happy Meals! In the most current form, Sony Pictures is delivering the message about their movie Surf's Up (something Z), which is interacting with McDonald's food products, being consumed by children (probably not a good thing). In this example "Happy Meals" is the platform, it is the repeatable process. A multi-sided market has economies of scale and multiple network effects.

And finally a multi-sided market "technology" platform enables "something Z" to be created (and arguably deployed) based on the model (both data and services) stored within in "product X". I believe examples of multi-sided market "technology" platforms include, mobile providers, gaming systems and Though I would argue that some of these technology platforms are more OPEN/FREE MARKET driven than others (BREW in the mobile space is annoying). Also, just offering web api's does not make you make a multi-sided market technology platform! You must also provide the ability for "something Z" to be deployed in/on/around your platform.

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