Category: network effects

Network effects

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Disintermediation in Two-Sided Marketplaces (teaching materials) with Philip Hu

Edelman, Benjamin, and Philip Hu. “Disintermediation in Two-Sided Marketplaces.” Harvard Business School Technical Note 917-004, June 2016. (Revised March 2017.) (educator access at HBP. request a courtesy copy.)

Two-sided marketplaces often risk disintermediation: users may rely on the marketplace to find each other but then perform related future transactions—or even the current transaction—without the platform’s involvement and without paying any fees the platform may charge. This technical note assesses which marketplaces are most vulnerable to disintermediation and offers a set of strategies marketplaces can implement in order to reduce their vulnerability.

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How to Launch Your Digital Platform: A Playbook for Strategists

Edelman, Benjamin. “How to Launch Your Digital Platform: A Playbook for Strategists.” Harvard Business Review 93, no. 4 (April 2015): 90-97. (Reprinted in Launch a Start-Up That Lasts, Harvard Business Review OnPoint, Winter 2016.)

Official abstract:

The ubiquity of Internet access has caused a sharp rise in the number of businesses offering platforms that connect users for communication or commerce. Entrepreneurs are particularly drawn to these platforms because they create significant value and have modest operating costs, and network effects protect their position once established–users rarely leave a vibrant platform. But these businesses also raise significant start-up challenges. Every platform starts out empty. Platforms need to immediately attract not only many users but also multiple types of users. For example, it’s not enough that many customers want to book taxis by smartphone. Drivers must also be willing to accept smartphone bookings. Harvard Business School professor Ben Edelman has been studying the dynamics of platform businesses and the strategies for launching them for 10 years. In this article he draws on research on dozens of platform sites and products to offer a framework for building a successful platform business. It involves asking five basic questions: (1) Can I attract a large group of users at once? (2) Can I offer stand-alone value to users? (3) How can I build credibility with customers? (4) How should I charge users? (5) Should my platform be compatible with legacy systems?

Informal introduction:

For online platform businesses, customer mobilization challenges loom large. The most successful platforms connect two or more types of users—buyers and sellers on a shopping portal, travelers and hotel operators on a booking service—and a strong launch usually requires convincing early users to join even before the platform reaches scale. Customers find Skype worth installing only if there are people on the platform to talk to. Who would join PayPal if there were no one to pay? Every platform starts out empty, making these worries particularly acute. For multisided platforms, which need not only many users, but many users of different types, the risk is even greater. It’s not enough for a car-dispatch platform to have a large base of customers who want to book rides by smartphone. It also needs drivers willing to accept those bookings.

Often, a platform’s designer has a workable plan once it achieves an early critical mass of users. If a service had drivers, it could attract passengers, or vice versa. And when we look at the myriad platforms that have overcome these hurdles, it can be easy to assume solutions will present themselves. In fact success is far from guaranteed, and many startups fail at this crucial stage. In an article in next month’s Harvard Business Review, I offer strategies to guide entrepreneurs through this challenge.

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Reinventing Retail: ShopRunner’s Network Bet (teaching materials) with Karen Webster

Edelman, Benjamin, and Karen Webster. “Reinventing Retail: ShopRunner’s Network Bet.” Harvard Business School Case 915-002, August 2014. (Revised March 2015.) (educator access at HBP. request a courtesy copy.)

ShopRunner considers adjustments to improve its online shopping service which offers no-charge two-day shipping as well as easy returns and other conveniences. Competitors’ diverse pricing models and ancillary benefits raise questions about how to structure and price ShopRunner’s offering. Meanwhile, an investment from Alibaba presents new opportunities in China but risks distraction from the core business.

Teaching Materials:

Reinventing Retail: ShopRunner’s Network Bet – Teaching Note (HBP 915023)

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Optimization and Expansion at OpenTable (teaching materials) with Karen Webster

Edelman, Benjamin, and Karen Webster. “Optimization and Expansion at OpenTable.” Harvard Business School Case 915-003, August 2014. (Revised March 2015.) (educator access at HBP. request courtesy copy.)

OpenTable considers adjustments to increase its benefits to merchants, including a novel payments service that lets customers skip the multi-step process of using a credit card.

Supplement:

Optimization and Expansion at OpenTable – PowerPoint Supplement (HBP 910010)

Teaching Materials:

Optimization and Expansion at OpenTable – Teaching Note (HBP 915013)

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The Market Power of Platform-Mediated Networks (teaching materials)

Edelman, Benjamin. “The Market Power of Platform-Mediated Networks.” Harvard Business School Technical Note 914-029, January 2014. (Revised March 2015.) (educator access at HBP. request a courtesy copy.)

This note provides criteria to evaluate the power of a platform-mediated network. For a company considering building such a network or an investor considering funding such an effort, this analysis reveals the scope and desirability of the opportunity. Meanwhile, for a company doing business with such a network, as a supplier or as a customer, this note provides strategies to shift the split of surplus to the company’s benefit.

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SaferTaxi: Connecting Taxis and Passengers in South America (teaching materials) with Peter Coles

Coles, Peter, and Benjamin Edelman. “SaferTaxi: Connecting Taxis and Passengers in South America.” Harvard Business School Case 913-041, April 2013. (Revised October 2014.) (educator access at HBP. request a courtesy copy.)

SaferTaxi, a taxi booking service in South America must develop its mobilization strategy; that is, it must attract enough passengers and drivers to make its service worthwhile for all. Drivers hesitate to pay for SaferTaxi’s smartphones and service unless these will deliver passenger bookings—and passengers have no reason to sign up unless drivers are available. Meanwhile, regulators question the permissibility of online taxi booking in light of regulatory requirements, and some existing taxi booking vendors feel threatened by SaferTaxi’s efforts to enter the market. As SaferTaxi attempts to satisfy these diverse constituents, international competition looms. What should SaferTaxi’s founders do next?

Teaching Materials:

SaferTaxi: Connecting Taxis and Passengers in South America – Teaching Note (HBP 913063)

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Pricing and Partnership at Zillow, Inc. (teaching materials) with Peter Coles

Coles, Peter, and Benjamin Edelman. “Pricing and Partnership at Zillow, Inc.” Harvard Business School Case 913-021, November 2012. (Revised March 2015.) (educator access at HBP. request a courtesy copy.)

As Zillow’s real estate search service gains user adoption, some real estate professionals question Zillow’s policies, fees, and power. Dissatisfied real estate professionals could remove listings from Zillow, reducing the service’s value to users. Should Zillow adjust its approach in order to address complaints?

Teaching Materials:

Pricing and Partnership at Zillow, Inc. – Teaching Note (HBP 914043)

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Attack of the Clones: Birchbox Defends Against Copycat Competitors (teaching materials) with Peter Coles

Coles, Peter A., and Benjamin Edelman. “Attack of the Clones: Birchbox Defends Against Copycat Competitors.” Harvard Business School Case 912-010, November 2011. (Revised October 2014.) ( educator access at HBP. request a courtesy copy.)

Birchbox offers trial-sized beauty products delivered monthly by mail—attracting rave reviews. Seeing the success of this model, numerous “copycat” clones seek to offer the same service. Many of these copycats focus on non-U.S. countries, but others are challenging Birchbox on its home territory. Can Birchbox defend its position? How?

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The Online Economy: Strategy and Entrepreneurship — Course Architecture Note (teaching materials) with Peter Coles

Coles, Peter, and Benjamin Edelman. “The Online Economy: Strategy and Entrepreneurship — Course Architecture Note.” Harvard Business School Course Overview Note 911-069, April 2011. (Revised February 2015.) (educator access at HBP. request a courtesy copy.)

This note provides an overview of the Harvard Business School course “The Online Economy: Strategy and Entrepreneurship.” It covers the framework for the course, key principles within each course module, and a synopsis of each case, along with the lessons the case is meant to convey.