Platforms are considered products or services that bring together users in two-sided networks (Eisenmann et al.,2006). As Eisenmann et al. (2006) argues, such platforms differ from traditional markets. Where a traditional markets sees cost on one side and revenue on the other; a two-sided network market sees costs and revenues on both sides as a result of two user groups.
To better understand two-sided platform markets, a common example used, also by Eisenmann et al. (2006) is the idea of the video gaming industry. Taking Playstation as an example, the platform provider, Playstation ultimately acts as a middle man between the end-users (gamers) and game providers (developers). When developers are informed and identify that Playstation has a large customer base and network of users, they would be more willing to develop games compatible to PlayStation. Similarly, with credit-card platform providers like VISA and American Express, vendors would be more likely to pay a fee to accept VISA or American Express if there is a large customer base using one of the two cards as their preferred choice.
As suggested by Zhu and Furr (2016), several current platform providers began their journey as product providers. For instance, taking Google as an example, the company began as a search engine and today has transformed into a platform allowing Advertisers to promote their ads to end-users. Considering the examples above, what other markets do you think have the potential to evolve into platform markets?
Interestingly, whilst writing this entry, a thought developed. Marketplaces such as Amazon were a common example of two-sided platform markets. This seems fairly obvious when we, as customers, go on Amazon to search for an item, and vendors from all over the world provide their goods through Amazon as the intermediary. However, Amazon also produces own-labeled goods, from batteries to baby wipes which are indeed bringing positive returns for the company (Rao, 2016). So what would the implications be for the two-sided platform business model of some of Amazons product categories if the company are able to gain control and save costs from selling their own goods, rather than those of a vendor? In a sense wouldn’t this eliminate the need for Amazon enable vendors and return the model into a traditional one-sided market (at least for some items)?
References
Eisenmann, T., Parker, T. and W.Van Alystne, M. (2006), Strategies for Two-Sided Markets, Harvard Business Review, [Accessed 2/10/2017]
Zhu, F. and Furr N., (2016), Products to Platforms: Making the Leap, Harvard Business Review, [online] Available at: https://hbr.org/2016/04/products-to-platforms-making-the-leap [Accessed 2/10/2017]
Rao, L. (2016), Amazon’s Private Label Brands Are On Fire, Fortune, Available at: http://fortune.com/2016/11/04/amazons-private-label-brands/ [Accessed 2/20/2017]
In a way it is a smart plan by Amazon to produce their own goods. I would imagine that they are under careful scrutiny not to place their goods higher in the search results compared to other goods. Google was recently brought to court in the EU as it violated this, abusing the power it has by placing their own goods higher than other goods in the shopping section. Also, the products that Amazon sells as their own brand such as batteries are commodities, which most people still buy at convenience stores or supermarkets, which makes me think that consumers will keep buying these products at convenient physical locations. However, people have said that about every other industry that Amazon has managed to shake up, so maybe Amazon will be able to win market share with these commodity products as well.
Hi Sarisa, interesting read!
If I’m correctly understanding your last thought/question – considering the probable elimination of the need for Amazon to have third party vendors realizing a two-sided market – I would like to comment on that. As Amazon could very likely sell different products on their own, I think for the majority of the products they will not get in the way of the other vendors. Simply because most products on Amazon are niche products, and could not really be profitable by producing those own-labeled. As discussed during the lectures, the long-tail of products that Amazon provides on its platform as a result of the vendors (two-sided market), is a strength. It allows Amazon to gain a very broad audience by selling a very wide range of different products. A lot of which Amazon would never be able to start producing itself. This is why I think the need of Amazon for enabling vendors to sell products through their platform, will not be eliminated.
However, I do believe that Amazon could start selling their own products from different product categories, as you also mentioned in your article with the batteries and baby wipes. As Amazon collects all of their sales data, they could see which products (in which categories) are being sold big-time and for what prices on average. A simple research on costs of these particular products, could very well give Amazon interesting insights. And so end up in a decision of Amazon, starting their own production in these specific products and selling them with their own-labeled. This way, it could indeed bring positive returns to the company with very little risks, as I think also happened for the products you mentioned: Batteries and baby wipes.
In short, I think that Amazon will always have this two-sides market as a result of a tremendous amount of niche products which will not be interesting to produce themselves. In non-niche good-selling products, you might see more own-labeled products by Amazon, as it could very well be interesting for the company in terms of profit.
Ricardo, thanks for your comments and opinions! I agree with you and do not think that the possibility for vendors to sell products through the platform will be fully eliminated. However, I am just wondering and very interested for instance for very specific products that are more of commodities.. I.e. baby wipes, Amazon is holds the third largest market share for baby wipes, after Huggies and Pampers according to (https://techcrunch.com/2016/11/03/amazons-private-label-brands-are-killing-it-says-new-report/). On the one hand, I have the feeling that Amazon could open up an Amazon.Groceries and only sell their own products, although, I would be skeptical that it would prosper (but perhaps a possibility). On the other hand, I suppose it is similar to what Isabel mentioned, that it would not become a one-sided platform as their own labels simply add choice for the customer which may make them more attracted to the platform.
I suppose that we come into agreement with what you mentioned in the latter part of your comment too 🙂
Offering Amazon’s own brands is a clever move; because of their strong data analytics and customer insights they are pretty much informed about customer needs and preferences. They simply cut out the middle man to increase profits (Murphy, 2017). Amazon’s growth strategy is quite relentless.
Most of the products Amazon currently markets with their own brand are commodity products for which customers are not very brand loyal. This just offers customers a bigger choice (or gives the impression of more choice), increase the capture of additional revenue (commodities will always be bought by people) (Del Rey, 2017) and therefore attract more customers. It might also be a smart move of Amazon because those commodities might have a spill-over effect on other products being sold.
Turning Amazon into a one-sided market (for some products) would not make sense in my opinion. Consumers would still want to be able to choose from a variety of products – or at least feel like Amazon offers them several options. Even if they ultimately choose Amazon’s brand, they still want to have a selection of different ‘brands’ and choose according to their preferences. Having a couple of additional sellers on the platform does not increase Amazon’s costs, it just increases the size and the strength of the platform. Amazon probably wants to keep the two-sided market alive – otherwise they would lose customers and revenues. Amazon’s platform is already very strong- so advancing into new markets might seem like cannibalizing other products but will probably not harm Amazon as a whole.
References:
Del Rey, J. (2017). Some of Amazon’s own brands are becoming super popular online. [online] Recode. Available at: https://www.recode.net/2017/6/4/15737242/amazon-amazonbasics-batteries-elements-baby-wipes-private-label [Accessed 4 Oct. 2017].
Murphy, M. (2017). Amazon owns a whole collection of secret brands. [online] Quartz. Available at: https://qz.com/1039381/amazon-owns-a-whole-collection-of-secret-brands/ [Accessed 4 Oct. 2017].
Isabel, interesting points you raise and I most definitely agree that maintaining the two-sided network is the best way forward for Amazon. Nonetheless, it is still interesting to see what the brand is doing now with its own labels. I believe that the brand have built such a strong brand image which reflects in strong customer loyalty that now they are even opening their own grocery store. Recently, I also read that Amazon considered/are considering to open physical book stores. Isn’t this ironic considering they were the one that drove most physical books stores out of business in the late 1990’s early 2000’s. It is like going back to the traditional business models, with a twist. As I read with the book store that it will be highly data focused, with regards to what gets shelved etc.