A Guide to Multi-Sided Markets in the Digital Era
From the invention of the Gutenberg printing press to the rise of the steam engine; the development of new technologies and trends has been instrumental in shaping the world’s businesses opportunities.
Today, the increasing sophistication of IT services – helped immeasurably by the adoption of cloud computing and explosion in data volumes – is just the latest technology to create new commercial models. In particular, we are now seeing a rise in multi-sided markets.
A New Way of Operating
Unlike the traditional, one-sided approach – in which an organisation serves one set of customers – a multi sided market comprises numerous groups of stakeholders within a single ecosystem, all with their own distinct agendas. Importantly, this model requires interdependence, with everyone involved playing a critical role. eBay is a good example, using its trading platform to connect one set of customers (buyers) with another (sellers). eBay must serve the needs of both retailers and shoppers, ensuring that all parties are happy.
eBay is in no way an isolated example: online dating sites, crowd funding sites and loyalty cards are among a myriad of platforms operating a multi-sided model and it’s data which is enabling these innovative business models.
In fact, the model itself is not necessarily a new trend. Instead, it is the volume at which we are seeing them emerge which is noteworthy. Aided by the rise of internet access across the globe and data analytics, organisations are able to experiment with business ideas – creating asymmetrical models in which one side of the market can pay less (or even nothing), while the cost is passed to other stakeholders. Take Facebook’s operating model: anyone can join for free, creating a solid user base to which application developers and advertisers can sell. Additionally, Facebook can exploit, analyse and cross-link user data for further revenue opportunities – selling key statistics about certain sectors of the market to interested third-parties.
Building a Future Business
Here, we once again see the impact of ‘two-speed’ thinking, with organisations using traditional IT as a springboard for creative digital strategies. While the ‘IT’ side delivers what is expected (guaranteed uptime, smooth user experience and secure access), ‘Digital’ offers a gateway for those outside the IT department to wow their customer base by delivering new and relevant services in exciting ways. The challenge lies in balancing privacy, user experience and business value.
The possibilities are endless: car dashboards offering insurance to purchase by the journey rather than annually, smart-fridges ordering groceries via subscription or mobile phone operators partnering with banking services to pay a customer’s bills directly.
The principle of the multi-sided market can be seen through our work with Renault, creating an in-car payments system, enabling drivers to shop on the move, while also providing analytics about the driver to an insurer to create a personalised premium for that customer, opening up a new business ecosystem.
Most excitingly these are not possibilities for some far-flung future but are already emerging with the advent of connected living and the Internet of Everything. IT may be the enabler, but Digital Thinking is the driving force…
Look out for my next blog, looking at how organisations can help encourage ‘Digital’ Thinking among the workforce…