Invisible Engines (MIT Press) is an interesting look at how companies develop two-sided software platforms to drive business growth. The term "two-sided" refers to a platform delivering value by having two sets (i.e. sides) of customers where each side finds the other valuable. For example, online auctions such as eBay are only valuable for sellers if there are a lot of buyers bidding up the price of an item. Similarly, it is only valuable for buyers if there are a lot of sellers offering a broad depth of items for sale.
The authors take a look at a variety of high-tech industries driven by two-sided platforms including video game developers/game consoles and operating systems/software applications. They also discuss the three-sided Internet media player platform (i.e. Real Player) with end-users/content providers/developers relying on each other to build a high-value offering.
The two-sided platform is difficult to build, but once done, it lends itself to tremendous network effects. The trick is to figure out how to build the first side in order to attract the second side. For a large company with an established brand, this can be significantly easier. Think about how when Microsoft releases a new OS, there are already a plethora of software titles available on the day of the launch. Developers know Microsoft's product will sell well in the market, so they have no hesitation in investing resources to develop applications prior to Microsoft building an installed base of customers.
However, if you aren't a heavy hitter like Microsoft, your best bet may be to invest your own resources to develop one side of the platform. An example of this was when Nintendo released its first gaming platform. They developed games for their console and Super Mario Bros. was the killer app that drove sales of the platform. Once the console was in the hands of a mass market of consumers, software developers began to offer games on the platform.
I would highly recommend this book for anyone involved in a two-sided business or for those in the software industry. Understanding two-sided strategies may be the trick to drive further sales growth and lock-in customers to your platform.
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