page_title: Two-sided market
section_title: Strategic issues
hierarchical_section_title: Two-sided market / Strategic issues
caption_attribution_description: English: Diagram shows platform pricing high to consumer side and low to developer side. Authorship: Eisenmann, Parker, Van Alstyne
context_page_description: A two-sided market, also called a two-sided network, is an intermediary economic platform having two distinct user groups that provide each other with network benefits. The organization that creates value primarily by enabling direct interactions between two distinct types of affiliated customers is called a multi-sided platform. This concept of two-sided markets has been mainly theorised by the French economists Jean Tirole and Jean-Charles Rochet.
  Two-sided networks can be found in many industries, sharing the space with traditional product and service offerings. Example markets include credit cards; health maintenance organizations; operating systems; yellow pages; video-game consoles; recruitment sites; search engines; and communication networks, such as the Internet. Examples of well known companies employing two-sided markets include such organizations as American Express, eBay, Taobao, Facebook, LinkedIn, Mall of America, Match.com, AIESEC, Monster.com, and Sony.
  Benefits to each group demand economies of scale. Consumers, for example, prefer credit cards honored by more merchants, while merchants prefer cards carried by more consumers.
context_section_description: If building a bigger network is one reason to subsidize adoption, then stimulating value adding innovations is the other. Consider, for example, the value of an operating system with no applications. While Apple initially tried to charge both sides of the market, like Adobe did in figure 2, Microsoft uncovered a second pricing rule: subsidize those who add platform value. In this context, consumers, not developers are the money side.
  Which market represents the money side and which market represents the subsidy side depends on this critical tradeoff: increasing network size versus growing network value. The size rule lets people increase adoption more while the value rule lets people increase price more.
  Although recently developed in terms of economic theory, two-sided networks help to explain many classic battles, for example, Betamax vs. VHS, Mac vs. Windows, CBS vs. RCA in color TV, American Express vs. Visa, and more recently Blu-ray vs. HD DVD.
  In the case of color TV, CBS and RCA offered rival formats but initially neither gained market traction. Viewers had little reason to buy expensive color TVs in the absence of color programming. Likewise, broadcasters had little reason to develop color programming when households lacked color TVs. RCA won the battle in two ways. It flooded the market with low cost black-and-white TVs incompatible with the CBS format but compatible with its own. Broadcasters then needed to use the RCA format to reach established viewers. RCA also subsidized Walt Disney's Wonderful World of Color, which gave consumers reason to buy the new technology.
caption: Figure 4: In this market, consumers care more about access to critical features. The main effect of a subsidy is to change network value.[12]
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