Strategic challenges for Multisided Platforms & important strategic trade-offs
Different pricing structures for multisided platforms
What is Multi-Sided Platform (MSP)
1.
A digital platform that acts as an intermediary to connect two or more mutually dependent groups of users (e.g.,
sellers and buyers) with shared economic objectives. To be successful, MSPs must attract as many users as
possible to make it useful and valuable. Learn more in: Mapping the E-Business Ecosystem in Indonesia: A
Comprehensive Analysis
challenges
Although we have talked about several highly successful examples like amazon and Airbnb.
of multisided platforms it’s known that most of the attempts actually fail. That’s because
multisided platforms, require constant consumption: Thus, the company must be regularly
acquiring – and retaining – existing and new customers. Building an initial user base can be
hard and demands a high-quality service. Example: When Uber launched in Seattle, they paid
town taxi drivers to do nothing. They artificially created supply for their platform. So a
multisided platform can be successfully executed only if you keep all the participants
engaged.
important strategic trade-offs
1 How Many Sides to Bring on Board?
The first strategic tradeoff is how many sides/parties should we bring on board our
platform? In some cases, the answer is obvious for instance, eBay did not have to think too
hard before identifying buyers and sellers as its relevant sides. Sometimes, however, multisided platforms face a real choice when it comes to the number and identity of the sides to
attract.
Another example is in the personal computer industry, Microsoft runs Windows as a threesided platform, connecting users, third-party application developers (such as Adobe and
Intuit) and third-party hardware manufacturers (OEMs such as Dell, Hewlett-Packard and
Toshiba). In contrast, Apple has always stuck to a two-sided model — users and application
developers — while producing its own hardware.
Looking at these examples, the trade-off involved in choosing whether to attract more or
fewer sides becomes apparent.
More sides lead to larger scale and potentially diversified sources of revenues. good reasons
for staying with fewer sides, even if attracting many sides is possible, doing so carries the risk
of creating too much complexity and even conflicts of interest between the multiple sides and
the Multi sided platform
Strategy Challenge No. 2
Multisided Platform Governance Rules
As MSPs create value by facilitating interactions between third parties, a key part of their
strategy should be some regulation of third-party actions, beacsue they affect the value of the
MSP’s entire ecosystem and customer proposition.23 MSPs can regulate their various
customers by resorting to governance rules


Rules regulating access to the MSP: Who is allowed to join?
Rules regulating interactions on the MSP: What are the various parties on the platform
allowed to do?

in the smartphone market, the two leading MSPs differ significantly in their
governance rules. Apple places relatively tight restrictions on third-party developers
for its iOS two-sided platform, while Google is much more liberal with respect to
developers for its three-sided Android platform. For example, Google allows
developers to use a variety of third-party tools in building their Android apps and
accepts most new apps. But developers for Apple’s iOS are restricted to a fixed set of
Apple-supplied tools. Furthermore, approval of new apps takes several weeks in
Apple’s iPhone App Store, and Apple routinely rejects applications that it does not
deem of satisfactory quality or simply a “good fit” for the iPhone. (Unsurprisingly,
Apple’s criteria are viewed as arbitrary by some developers.26)
Strategy Challenge No. 3:
Multisided Platform Pricing Structures
How should MSPs choose their pricing structures that’s the final strategic trade-off for multi
sided platforms.
The first pricing structure is that For each group, charge a higher price when the group in
question has less price sensitivity. Price sensitivity is the degree to which demand changes when the
cost of a product or service changes.
The price sensitivity on any given side of an MSP can be estimated by the availability of
substitute services — or simply by the bargaining power that the MSP has over that particular
participant group.
1. If there is no priced transaction between the sides, then charge more to the side that
stands to benefit more from the presence of the other side or sides. but also
straightforward. For instance, business conference organizers typically charge attendees but
not invited speakers.
2. If there is a priced transaction between two sides, then charge more to the side that can
extract more value from the other side. If side A gets a particularly good deal from side B
in a monetary transaction, the MSP should charge more to side A in order not to excessively
penalize side B; otherwise, side B might not derive enough value from the MSP to warrant
participation.
Discussion point:
What do you think is the best multi-sided platform? And which group of users do they
connect?
Before we continue what do you guys think what can cause a market failure when
building a multisided platform?
Common obstacles when building multi-sided platforms
The first potential source of MSP market failure is the risk that too much competition
within one side of an MSP might reduce the incentive to invest in developing highquality products or services. This is the main reason that video game console makers
maintain relatively tight control over access by third-party game developers even today.
excessive competition between developers on any given console could reduce the profits that
each developer can extract, to the point where they may no longer find it profitable to invest
in groundbreaking projects. As a result, the Multi sided platforms (console makers) restrict
entry of developers so that those who are licensed are able to make a sufficient return on their
investments.28
The second one is a situation called the market for lemons. George Akerlof examined the
market for used cars and considered a situation known as the market for lemons, where the
sellers are better informed than the buyers. The effect of the informed seller and uninformed
buyer produces a “lemons” problem. At any given price, all the lemons (so the bad used
cars) and only a few of the good cars are offered, and the buyer—not knowing the quality of
the car—isn’t willing to pay as much as the actual value of a high-value car offered for sale.
This causes the market to collapse.
Third, without some form of governance by the MSP, each constituent might fail to take
actions or investments that would have positive spillover effects for the MSP. Multi sided
platfors are well-advised to consider enforcing governance rules.