Professor Zhou Zhou, from the Department of
Information Systems, along with co-authors, has
looked into how users drive value in two-sided markets
and how this can affect platform value. One of the
deepest platform challenges is understanding how
users create network value for each other and which
investments provide leverage. Is more value created by
advertising to attract users, discounting to subsidise
users, or investing in architecture to connect and retain
users? Having grown a user network, which promotes
"winner-take-all" dominance, why do platforms with
large user bases fail? To address these challenges,
the authors build a theoretical and empirical model
to simultaneously measure within and across period
network effects for two-sided markets. This yields
three main results. First, the authors extend the
customer lifetime value (CLV) literature to network
markets, allowing the measurement of how different
interventions drive CLV on both sides of two-sided
markets. Second, they apply the model to the case
of Groupon and empirically estimate the strength of
within period and across period attraction. They find
significant within period attraction between merchants
and consumers that does not persist through time. This
offers one explanation for the puzzle that even strong network effects might not yield market dominance.
Third, they find that users attract users more strongly
in experience than search goods markets, as user input
drives CLV more than price does. Together these results
provide numerous points of leverage for understanding
and boosting CLV in order to increase platform value.
Zhou, Zhou; Zhang, Lingling; van Alstyne, Marshall.
"How Users Drive Value in Two-sided Markets:
Platform Designs That Matter." April 2023, In: MIS
Quarterly, Forthcoming
Reference:
https://misq.umn.edu/how-users-drive-value-in-two-sided-markets-platform-designs-that-matter.html
