Multisided Business Model

Many platforms are single-sided platforms, with a seller at one end and a buyer at the other and, often, intermediaries (distributors) between them that transfer the product from buyer to seller without changing it substantively. All the organizations have been historically managed as a single-sided platform. 

As new value is generated in the network through expansion of the value and reciprocal value exchanged, industry model innovators will develop new businesses that more closely resemble multisided platforms. In a multisided platform, there may be multiple types of buyers and/or sellers – in fact, a single party can be both a buyer and a seller. 

Multisided businesses provide benefits to the interacting groups – while profiting from the transactions – by increasing and capturing indirect network externalities (INEs). 

This diagram shows how a multistep process stimulates these INEs in a two-sided market. In the first step, growth in the number of potential customers on side one for complementary products and services on side two occurs. This leads to an increase in the quantity and diversity of complements made available by side two. Next, because side one users are favorably inclined to a wider variety of products and services on the other side, they are more likely to join the platform. This makes it even more attractive for side two to develop new complements, and the cycle sustains itself .

A slightly more complex example involves an information aggregator. An information aggregator builds a relationship with end users by selling them (possibly at a subsidized price) energy usage display/management devices that are preloaded with useful applications, all of which are purchased from third-party developers. They thus serve as the link between device manufacturers and end users and between application developers and end users. 

With appropriate permissions from consumers, the platform owner can also collect information about the end users’ usage patterns, build profiles and market those profiles to retailers. The retailers are willing to pay for this information because of the benefits they accrue from it. The end users’ profiles also include information on demand response they are willing to provide; this can be exchanged with the retailers for payment as the need for such response arises. Thus, cash can flow in both directions between retailers and end users, with the transactions in both directions facilitated by the platform owner.

Note the platform owner is a company purely focused on the operation of the platform and the collection and exchange of data. Except for the end user, any one of the parties in the ecosystem can also serve as the platform owner – visually, this can be seen as “collapsing” the value exchange in the diagram for that party into the platform owner role in the center. For example, a device manufacturer could set up a multisided platform and take on responsibility as platform owner – including all interactions with application providers, end users and retailers.