Two-sided Markets

These days, investors are in love with two-sided markets. Eisenmann, Parker, and Van Alstyne explain why they are so interesting, and some strategies that need consideration with respect to them.

If you listed the blockbuster offerings that have redefined the global business land- scape, you’d find that many tie together two distinct groups of users. HMOs, for instance, link patients to health-care providers. Search engines join Web surfers and advertisers. 

When successful, these platforms catalyze a virtuous cycle: More demand from one user group spurs more from the other. For example, the more video games developers (one user group) create for the Microsoft X-Box platform, the more players (the other user group) snap up the latest X-Box. Meanwhile, the more players who use X-Box, the more developers willing to pay Microsoft a licens- ing fee to produce new games. And as user bases grow, margins fatten.