04. Multi-sided Model



The company develops a product or standardized service and sells it to customers. The value proposition is transactional: to provide a product or standardized service that customers will buy.



The company engages with a customer about a problem the customer faces, and provides an integrated solution. The value proposition is relational: to tailor solutions to each customer.



The company joins buyers and sellers in its online or physical marketplace. The value proposition is transactional: to facilitate exchange.



The company provides different products or services to different customer groups. The value proposition is multi-sided: one customer group gets additional benefits from the other group’s transactions.

This is how it works:

image/svg+xml image/svg+xml image/svg+xml FIRM Platform organiser CUSTOMER A CUSTOMER B Customer's need Customer's need Payment Payment Product X Product Y Additional benefit By Using Product X, Customer Acreates an additional benefit ofvalue to Customer B access throughProduct Y.

A multi-party arrangement (triadic) where a Firm 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 Firm. The value proposition is multi-dimensional: the Firm 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 Firm 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 Firm 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 Firm

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 firms 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 firm 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.

Typical examples:

  • - Chegg (close)

    Chegg is an online business based in Santa Clara, California that operates in the ‘learning’ space of the sharing economy.... › Read more

  • - Credit Karma (close)

    Credit Karma is an online personal finance platform where, in exchange for entering personal information, individuals can access and monitor their credit report/scores for free. These scores are already available on the web for a fee and are not produced b... › Read more

  • - Hulu’s Free On-Demand Videos (close)

    Hulu operates a business model often found in the media industry: that of platform business model where content is free to users and paid for by advertisers. These two groups are kept separate – advertising companies do not, nor could not easily them... › Read more

  • - Salary Finance (close)

    SalaryFinance offers a financial benefit service for employees that allows them to pay personal debts directly from their paycheck at low-interest rates. SalaryFinance prides itself on being a business with a social purpose. By consolidating existing perso... › Read more

  • - Shazam (close)

    Shazam represents an “exemplar” multisided business model in the music sector, where content is free to users and paid for by advertisers. Shazam is a free app with which smartphone users can identify music and TV programs by opening the app wh... › Read more

  • - SnapChat (close)

    Snapchat operates a multi-sided business model via a photo and video-sharing mobile application, where the shared content is deleted as soon as it is viewed.... › Read more

  • - Waze (close)

    Waze represents an “exemplar” platform business model in the navigation industry that mobilises location technology. The firm fully mediates the relationship between (a) drivers wanting navigation information, notably routes and live traffic in... › Read more

  • - We R Interactive (close)

    Video game developer We[R]Interactive enacts a platform business model. A free-to-play video game is marketed towards a highly segmented target group which is leveraged as a platform for exposure to relevant brands that pay to have a presence on the platfo... › Read more

Examplars libary:

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