Platform-mediated networks include users, whose interactions are related to the network effects, including intermediaries who make available a platform that aids users’ interactions. Such networks involve a large and growing share of the global economy which are as different as video games, postal delivery, credit cards, fuel cell-powered cars, instant messaging, web search, real estate brokerage, DVDs, and online dating. Sixty of the world’s 100 largest companies according to the current market value ranked by market value are earning most of their revenue from such networks, including American Express, Cisco, Citigroup, Time Warner, UPS, and Vodafone.
In many platform-mediated markets, network effects are so strong that a particular and distinct platform succeeds. The use of one-sided, two-sided and three-sided networks has explored the new situations for generating the profits. The positive and negative network effects have paved the way for the companies to lay their business by using these types of networks. This is very much evident from the success story of many companies, as evidenced by the impressive and stunning success of some platform providers like Microsoft, eBay, and Google.
These companies are showing a tremendous revenue generation as by using the network effect.
According to Thomas Eisenmann the Platform-Mediated Networks are the chief resources of revenue for the companies in today’s era. In the Platform-Mediated Networks, the network effect is used tremendously for economic growth of the companies. For example in credit card networks, consumers require a unique account, a plastic card, access to phone-based customer service, a monthly bill, and other resources.
Service providers require workstations and systems for authorizing transactions, procedures for submitting charges and receiving payment, and others. Given these different requirements, platform providers are serving these requirements for accomplishing the demand. The users are increasing, thus increasing the profit. These networks are associated with the large users. Many economists have studied the generous effect of the Platform-Mediated Networks.
The network effects are strong in the matching network when there are transactions in business encompass the heterogeneous demands and supply. The requirements in today’s era are accomplish by the service providers for the fulfillment of the user demand. Also the users strongly prefer a network that offers access to a wide variety of platforms. The platforms provide different types of facility through networks like in some networks, users have sequential transactions but require novelty e.g. DVDs or video games and some networks facilitate user mobility like credit card. Thus the service providers develop their infrastructure for these sorts of requirement
Even for increasing the revenue the service providers are concerned about the virtues for the users for increasing the profit margins. The service providers have followed the virtues like Side Payments, Permanent Subsidies in Two-Sided Networks and Subsidies for Early Adopters for increasing the business. Platform intermediaries sometimes enjoy strong supply-related scale economies because they require heavy upfront investments that yield fixed-cost leverage.
For example, launching a new video game console entails huge investments in custom semiconductor design. Likewise, many networked businesses—for example, software development—offer potential for learning by doing because they involve complex, multi-step production processes that lend themselves to ongoing improvement.
Network effects are termed and viewed as “demand-related” instead of “supply-related” scale economies. This is the reason why there is such a stunning boom in this market. The companies are utilizing the resources for fulfilling the demand of the user rather than only supplying the products. The company like eBay is basically working on this principle only by increasing its resources for empowering the user with different facilities for online transactions i.e. purchasing and selling.
Platforms also can be categorized into four groups based on their principal function. They are providing connectivity, promulgating variety, matching, and price setting. The connectivity problems are further being taken into consideration by the providers to resolve the problems and requirements of the As with matching platforms, users rely on price-setting platforms to find transaction partners. Whereas matching platforms help users reveal idiosyncratic requirements and offers, users in price-setting networks disclose the price at which they are willing to exchange well-defined items.
Even the platform intermediaries enjoy strong supply-related scale economies. Software development offers potential for learning and creating the new entities for the user and by applying the software in the platform mediated networks the cost also get decreased, increasing the profit margin in the business.
eBay is another example of a platform. The eBay users i.e. the bidders and sellers must have access to an Internet-connected PC with a web browser. Platform rules include registration requirements, policies for bidding price terms, dispute resolution procedures, and feedback systems for tracking sellers’ trustworthiness which are used rapidly and frequently by the user as the eBay is working for generating the revenue by fulfilling the demands of the users. The similar example can be taken of the Amazon. The Amazon is also working tremendously same as eBay as the users are using the Amazon as a platform of purchasing and selling as this company has also provided the demand related theory.
The speedy growth of open source software (e.g., Linux) and content created through shared user communities (e.g., Wikipedia) has generated eagerness concerning the virtues of open versus closed network models. Thus even the article publishing websites are also generating the high revenues through the Platform-Mediated networks. Thus the saying of the Thomas Eisenmann is true as according to the studies and market analysis. The Platform-Mediated Networks are thus increasing their revenues day by day.
Reference:
1) Platform-Mediated Networks: Definitions and Core Concepts, 9-807-049, REV: OCTOBER 2, 2007.
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