Multisided business models create value through interactions among multiple players rather than traditional one-on-one transactions or information exchanges. In the media industry, advertising is a classic example of how these models work. Newspapers, magazines, and television stations offer content to their audiences while generating a significant portion of their revenues from third parties: advertisers. Other revenue, often through subscriptions, comes directly from consumers. More recently, this advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail . It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.
Technology is propagating new, equally powerful forms of multisided business models. In some information businesses, for example, data gathered from one set of users generate revenue when the business charges a separate set of customers for information services based on that data. Take Sermo, an online community of physicians who join (free of charge) to pose questions to other members, participate in discussion groups, and read medical articles. Third parties such as pharmaceutical companies, health care organizations, financial institutions, and government bodies pay for access to the anonymous interactions and polls of Sermo’s members.
As more people migrate to online activities, network effects can magnify the value of multisided business models. The “freemium” model is a case in point: a group of customers gets free services supported by those who pay a premium for special use. Flickr (online storage of photos), Pandora (online music), and Skype (online communication) not only use this kind of cross-subsidization but also demonstrate the leveraging effect of networks—the greater the number of free users, the more valuable the service becomes for all customers. Pandora harnesses the massive amounts of data from its free users to refine its music recommendations. All Flickr users benefit from a larger photo-posting community, all Skype members from an expanded universe of people with whom to connect.
Other companies find that when their core business is part of a network, valuable data (sometimes called “exhaust data”) are generated as a by-product. MasterCard, for instance, has built an advisory unit based on data the company gathers from its core credit card business: it analyzes consumer purchasing patterns and sells aggregated findings to merchants and others that want a better reading on buying trends. CHEP, a logistics-services provider, captures data on a significant portion of the transportation volume of the fastest-moving consumer goods and is now building a transportation-management business to take advantage of this visibility.
Not all companies, of course, could benefit from multisided models. But for those that can, a good starting point for testing them is to take inventory of all the data in a company’s businesses (including data flowing from customer interactions) and then ask, “Who might find this information valuable?” Another provocative thought: “What would happen if we provided our product or service free of charge?” or—more important, perhaps—“What if a competitor did so?” The responses should provide indications of the opportunities for disruption, as well as of vulnerabilities.
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