Can ‘multi-sided markets’ provide the basis for a new economy?

The championing of multi-sided market platforms has the potential to be a powerful disruptor to traditional business models, ultimately blurring the distinctions between “business to business” and “business to consumer” structures. Can this new style of market provide the basis of a new economy?

The traditional marketplace has long been structured on certain fundamental concepts – such as that of the seller and the buyer, in which one party (the seller) discloses a price for a product or service and another party (the buyer) decides whether they consider it worth purchasing or not. However, this traditional concept is slowly but surely evolving. Reflecting the tendency towards stronger collaboration between stakeholders, there is a need for multi-sided flexible business platforms with open interfaces that unite the different participants.

What has emerged is a multi-sided market place in which more than two parties take part in the transaction. No longer is the only model one founded on a strict division between buyer and seller, and the boundaries between what constitutes buyer and seller are becoming blurred.

The main agent of this change in the market is the internet, in particular Web 2.0 and mobile access. Both consumers and business now expect unlimited internet access and high speed connections delivering access to applications and data from both fixed locations and mobile devices. As it becomes ever easier for people to connect from any device to any service, the volume of availability and use of such services continues to grow exponentially.

A large proportion of today’s popular online services are available to consumer and business users alike for free, or for a relatively small charge:online companies such as Google and Facebook offer powerful tools and services for free, which would have been very expensive 15 years ago. To maintain viability, these services need to generate revenue from usage beyond the core product – and the economic theory of the multi-sided market offers an answer, and as such, new business models are emerging to exploit this multi-sided market.

A huge amount of user context data is collected and stored in the use of these services, often without a defined usage and with only a speculative value attributed to it. This data – both user created and sensor generated – has potential intrinsic value. By exploiting the data generated through the usage of a platform to create information that holds a value for third parties, an indirect business model is established. This can generate the additional revenues required to make the underlying service viable. What this creates, therefore, is an economy based not on money but on this electronic exchange of personal data and information – the Data Economy.

The changing effect that the internet has had on the market place, reshaping it into a multi-sided platform and allowing for the emergence of this new economy means that it has not only eliminated traditional differences between buyer and seller but actually redefined what it is that is exchanged in the marketplace and how this is to be valued.

Service providers will find that their approach of “if you don’t pay for the product, you ARE the product” is a delicate one to manoeuvre. Many users out there are not aware of the ways in which their “private” data is used; others do not mind either way. Whatever the case, the tension between data exploitation, usage rights and privacy is a key challenge that the future Data Economy will need to address.

For B2B services the data share assignment of value is harder. Business data is usually handled more sensitively than consumer data and sharing it with other parties could create competitive disadvantage and even compromise intellectual property rights. The challenge will be to derive value from data collected and stored across the eco-system of a company, its partners and customers, without compromising IP integrity and privacy.

We can already see examples of the potential of the multi-sided market in action. For instance,Atos has worked with large European car manufacturers interested in introducing internet into cars. This is indeed not a technical challenge in itself, given the use of common 3G technology; instead, the challenge is related to the business model, as consumers are not interested in paying for an additional data subscription for their cars. However, if consumers are willing to provide a third party insight into their driving data, this third party can offset the costs of the infrastructure in the car, overcoming the hurdle of who will pay for the service.

Another example of a potential multi-sided market is energy providers and consumers. If energy suppliers are authorised to access user information from their customers, such as by installing ‘smart meters’, they can pay for the information with energy saving tips, such as energy optimisation information discounts and advice of equipment. Just with basic usage information, an energy company can calculate how much energy could be saved with a new and more efficient boiler; a customer can therefore reduce energy cost while an energy producer predicts and limits peak energy usage, thus reducing infrastructure cost.

These examples are just the beginning. As the multi-sided market platforms evolve and become increasingly sophisticated, new possibilities emerge. A business model based on a multi-sided market can be used to overcome certain hurdles that a traditional market cannot solve, or provide solutions to current economic challenges by helping consumers save money while businesses find new sources of revenue.

The emergence of a Data Economy can change and challenge current economic thinking and provide a platform for disruptive business models. It offers a whole new spectrum of possibilities for the delivery of internet based services (functionality and data) to the doorstep of demanding users and could create the next wave of innovation on the internet.

As this internet application and service revolution continues, the providers of successful multipurpose transactional platforms will quickly be able to realize their full potential and unlock long term and sustainable revenue streams; and where companies are transparent with consumers about the value of their data in a digital world, consumers can reap the true value of their own data through access to new services, which could build a new era of trust and cooperation between enterprises and consumers.

Hubert Tardieu, CEO Advisor at Atos and sponsor of the Atos Scientific Community

Ascent Journey 2016, Atos’ Scientific Community’s predictions and visions for the technology that will shape business through to 2016, can be downloaded here