Module 8 Flashcards
What caused the evolution of Platform Business Models?
- Advancements in IT and communication technologies = lower transaction and
search costs - Ability to grow by exploiting network effects
- Ability to leverage communities vs. features of the product
What is network effect?
The more users on one side of network, the more attractive it is for people at the other side of the network.
OR
More generally- Network effects (or network externalities) explain how the value a user derives from a network relates to the number of users (n) in the network. Value increase by n^2- Metcalfe’s law.
What is Metcalfe’s law?
The value of network is proportional to n2 of users: Metcalf’s Law
– Two network users can make 1 connection, 5 can make 10 connections,12 66
connections etc.
– Number of possible connection between network users is equal to:
n(n-1)/2
What are the types of network externalities?
(+) Positive- an additional network user increases value to all other users.
(-) Negative- an additional network user decreases value
to all other users.
How does the network effect matches 2 sides?
- Make 1 side cheap to join. “Bolt” example, how they increased prices after many people joined.
- Subsidise- “Airbnb” ex. Subsiding hosts.
How does the network effect work in case of social media?
Value with every new user joining. The more people- the more valuable.
What makes platforms different from the traditional business?
Source workforce on demand, not on long-term. (Flink).
Algorithms - assigning tasks etc.
Whole power lies in network.
Explain: what is E-commerce. Name segments and examples.
- E-commerce: use of the Internet and Web to
transact - Began in 1995 and grew exponentially; still
stable even in a recession - Companies that survived the dot-com bubble
now thrive - Move from desktop to smartphone
Three major segments:
1.retail goods,
2.travel and services,
3.online content
Examples- Ebay, GOAT, StockX etc.
E-commerce features.
- Social
* A collection of technology-based
tools for communicating with
shoppers
* Conversations, engagement
* Leading social commerce
platforms: Facebook, Instagram,
Twitter, LinkedIn, TikTok - Mobile
* From PCs to mobile phones
* Mobile marketing is 70% of all
marketing
* People are constantly connected
to a cellphone - Local
* Local merchants can gain
access to customers (e.g.,
events you may want to
see)
* Personalized offers based
on GPS location
Name factors that make e-commerce unique.
- Ubiquity-
o Marketspace is virtual (allows customers to partake at anytime)
o Transaction costs reduced (the cost of participating in the market)
o Mobile devices extend services to local areas - Global reach (global shipping and reach)
- Universal standards- Lower market-entry costs, Reduces search costs for customers (costs of finding merchants), One set of technology standards: Internet standards.
- Richness- content variation: video audio, text etc.
- Interactivity- ex. using a chat window to interact with technical support.
- Information density- Reduction in information costs (greater price transparency), drop in information processing, storage, and communications cost.
- Personalization/customization- Technology permits modification of messages, goods (e.g., Amazon adjusts to your preferences)
- Social technology- Promotes user content generation and social networking (every user can be a marketer).
Name key concepts of E-commerce.
Internet and digital markets have changed the way companies conduct business:
o Information asymmetry reduced
o Menu costs (merchant’s costs of changing prices), search and transaction costs reduced
o Dynamic pricing enabled- different prices depending on demand, seasonality. Algorithms create it. Price discrimination.
o Switching costs
o Delayed gratification- waiting time for product to arrive, different if you go to store.
o Disintermediation (straight from manufacturer to customer, that reduces costs).
What is M- commerce? Main areas of growth?
45 percent of all retail e-commerce, mobile commerce. Evolved because of the telephone era.
Main areas of growth:
- Sales of digital content (music, TV, etc.)
- In-app sales to mobile devices
- Mass market retailing (Amazon, eBay, etc.)
Business models of E-commerce.
- Portal (search engine; accessing news e.g. Google, Facebook)
- E-tailer (selling goods online; e.g. Amazon, Picnic)
- Content provider (e.g. Netflix, Apple, Disney)
o Podcasting, streaming - Transaction broker (e.g. Expedia,Paypal)
- Market creator (bringing two or more sides of the market together; e.g., eBay, Airbnb)
- Service provider (e.g., G-Suite, Gmail)
- Community provider (e.g. Instagram, Linkedin)
Revenue models of E-commerce.
- Advertising revenue model
Revenue comes from displaying ads
Most widely used revenue model in e-commerce - Sales revenue model
Sale of good, information, or services
Micropayment system (Apple’s iTunes store) - Subscription revenue model
Content or services for a subscription fee (e.g., Spotify) - Free/Freemium revenue model
Basic services for free and premium for advanced features (e.g., video games) - Transaction fee revenue model
A fee for enabling or executing a transaction (e.g., Uber, Eventbrite) - Affiliate revenue model
Referring visitors to other websites for a fee (e.g., SkyScanner)
Referral fees or lead generation fees
What brings value to Networks for business?
- Exchange
On Facebook, you share/exchange information on yourself, your life.
A larger number of users results in a greater reach for exchanging “products and services”
On Airbnb, you can offer your accommodations to a larger number of customers. - Staying power
A large number of users suggests a strong market position. Companies may also compete by restricting access to users. - Building up a profile and a reputation is a long-term investment
- Complementary benefits
- Additional (third-party) products that provide additional value to network users
Describe platform ecosystems.
Platforms actively encourage third-party providers to integrate products and services (“Apps”) with their software, creating ecosystems. They provide an environment that makes it easy to fit the product to the platform software. Platforms often integrate cloud-based infrastructure for developers. Enables cheap, quick, and scalable app development. Examples include Windows, iOS, Android, Google Marketplace.
Producers and consumer exchange data via providers software.
Platform is a hybrid- between market and hierarchy.
Name market perspectives on networks.
- One-sided market
o Large share of value is derived from a single class of users
o E.g. messaging services, telephone networks - Two-sided market
o Value is derived from two categories of network users
o More complex as firms must consider interaction between the two sides
o E.g. payment services, video game consoles, Airbnb, Uber
- Same-side network effects
Increasing value to a class of users resulting from an increase in the number of users from that class
Example: the added value from your friends joining WhatsApp - Cross-side network effects
Increasing value to a class of users resulting from an increase in the number of users from another class
Examples: greater choice on Airbnb | a vendor offering a certain payment option | video game players and developers - Positive feedback loops (an increase in A leads to an increase in B which leads to an increase in A)
- Two-sided markets can have both types of exchange benefits
Example: user ratings on Airbnb or other platforms
What is the impact on network effect created by competition?
Industries with strong network effects lead to winner-takes all dynamics
o There may be strong competition when a new market emerges
o Once a leader emerges, positive feedback loops strengthen its position further
* Example 1: Ride-hailing apps
* Example 2: Mobile operating systems- duopoly
* Example 3: Social media- FB is the leader
What are the drivers to new and better services?
- Economic
2.Market
Customers are looking for flexibility and risk sharing (think of car sharing), Increased technological complexity (no need to have IT in house), focus on core competencies. - Sustainability
What is servitization?
Servitization is a business model innovation in which companies move from selling products to selling products as services.
aim:
o Better meeting customers’ needs
o Improving business results
o Improving competitive position
