Hi, my name is Kartik Hosanager, and this session is on building two-sided markets.
Two-sided markets are markets with two types of participants,
where the benefit for one side depends
on the number of participants on the other side of the market.
This is also known as cross-side network externalities or
cross-side network effects.
Take credit card networks, for example.
My value of joining a credit card network, such as Visa or
MasterCard is a function of the number of businesses that accept that credit card.
And for a small business, the value of being on that credit card network is
a function of the number of customers who have such a credit card.
And so, this is a great example of cross-side network effects.
Take gaming consoles, as another example.
Consider Xbox, or Sony PlayStation.
As a consumer, when I buy these gaming consoles, my value from that console is
a function of the number of interesting games that are available on the console.
And for a game developer, the value of building a game for that console
is a function of the number of people or consumers who use that console.
Another example of cross-side network effects.
Finally, consider Uber, which is an online taxi dispatch service.
As a consumer I value being on a service,
like uber if they're a lot of taxi cabs that are available on that network.
And for a taxi cab driver,
the value of joining Uber is a function of how many consumers are using Uber.
These are all examples of cross-side network effects, where the value
of one side depends on how many players or participants are on the other side.
Technology platforms are also good examples of two-sided networks, or
two-sided markets.
Technology platforms may be thought of as hardware or
software systems, which are partially programmable by outside developers.
So consider for example, Apple's iOS platform for
its iPhone, or Google's Android platform for Android phones.
The platform provider Apple of Google, provides a core platform capability.
Developers build on top of this platform, and therefore it is partially
programmable, and they add additional functionality on top of the platform.
Now, these kinds of platforms are good examples of two-sided markets because here
again, the value for me as a consumer of buying an iPhone is a function of
the number of apps available on it.
And the value for a developer of building an app on the iPhone platform is
a function of how many users use that platform.
Gaming consoles, like Xbox and Sony PlayStation are,
again, other examples of technology platforms.
A variety of unique issues arise in the context of two-sided networks,
the most important of which is how do you build liquidity in the market?
For example, if you consider a gaming console, consumers are not
willing to buy a gaming console unless there are enough developers on it.
Developers are not willing to build on the gaming console because there
are not enough consumers on it.
So, this creates a chicken and egg problem, and
you cannot solve the liquidity issue unless you address the chicken and
egg problem in some interesting manner.