This Pathway Requires

A multi-party arrangement (triadic) where an Organisation identifies two different customer groups A and B; and delivers to each group a (different) product, service or solution.

However, there is an additional requirement: B must get additional benefits from A’s usage that is orchestrated by the Organisation. The value proposition is multi-dimensional: the Organisation delivers independent benefits to each of A and B; and it orchestrates additional value between A and B (externalities).

The oldest multi-sided business model is the charity for the poor – donors give money to provide services for others and receive benefits from their consumption. This pathway requires that:

  • The Organisation has to identify and provide a product or service that is of use to customer group A.
  • This product or service also has to generate a positive externality (benefit) to another group of customers B.
  • The Organisation has to persuade B that it should pay money for the costs of supplying A, perhaps in exchange of an additional service.
  • The positive externality created by the exchange between A and B may be orchestrated by actors who lie outside of the boundary of the Organisation.

Some firms develop a special reputation in a market serving a group of customers B that generates possibilities of additional income from reselling some of the knowledge gained in this activity to a wholly separate group of customers A. And in this process, generating positive interactions between A and B. (This is the case of Ferrari Formula One – that resells the technology developed on the race track to other car companies in the form of best in class components.)

Failure rates are very high for this business model – but when successful, profits are larger than product equivalent – e.g. Google

Scalability – Many organisations start with developing a service for one customer group A that is provided for free but that is perceived as very valuable, and only when this customer group becomes really large does the firm look for another group of customers B to join and provide the revenues. (This is the Facebook story).

Profitability – Potential to be very high, if network effects are strong and there are low ongoing costs of facilitating positive externalities that result from exchange between Customer groups A and B.

Risk – Potentially quite high: the organisation is ultimately ceding control of the value proposition behind the exchange between customer groups A and B, because this model requires that customers are entrepreneurs and that customer group A will continue to have something of value to customer group B.

Transform your thinking of the
Multi-sided Business Model

The BusinessModelZoo™ provides insight to help you understand and navigate the opportunities and rewards as well as risks and threats to the multi-sided business model it faces from the other business model pathways.

A multi-sided business model platform each of whose customer groups adds value to the other groups has a high chance of being very successful, as is vividly demonstrated by the success of the Google multisided platform.

However, there are often large niches that a large multisided business model platform cannot serve well, because the additional partners destroys value. Advertising supported search engines have not been successful in markets such as real-estate and job search, where customers do not want an advertising component.

Market such as computer games are an excellent example of an industry where serious gamers do not want advertising supported offerings, and are willing to pay premiums for good product business model offerings and solutions business model offerings.

A multi-sided business model platform each of whose customer groups adds value to the other groups has a high chance of being very successful, as is vividly demonstrated by the success of the Google multisided platform.

However, there are often large niches that a large multisided business model platform cannot serve well, because the additional partners destroys value. Advertising supported search engines have not been successful in markets such as real-estate and job search, where customers do not want an advertising component.

Market such as computer games are an excellent example of an industry where serious gamers do not want advertising supported offerings, and are willing to pay premiums for good product business model offerings and solutions business model offerings.

Regulatory threats are serious for multisided business model businesses. Governments are increasingly worried about the conglomerate nature of multi-sided businesses, and shifting to a simpler product business model or solutions business model may well alleviate these pressures.

Discover other Business Model pathways

Explore all four business model pathways for developing your business. Each describes an ideal model of how a business can engage with its customer, deliver value, and monetize the result.

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