Sunday, January 11, 2009

Two-Sided Business Models

This post is a continuation on the post on One-Sided Business Models presented earlier, and part of a series also including Horizontal Business Models and Multi-Layer Business Models.

When the refinement of products and services, or the monetary flow has two directions, I refer to it as Two-Sided Business Models. The concept of a value chain and terms such as upstream and downstream is not as clear as in One-Sided Business Models. Development can be made by what is in One-Sided Business Models referred to as downstream actors and monetary flow can come from actors referred to as upstream.
To explain the increased complexity and non-linear value creation, the term value network has been used in the literature. Actors in the value network can have multiple roles; the end-user being a co-developer, the supplier being a customer for end-user data etc.

In Two-Sided Business Models complex revenue and profit sharing models are sometimes used to compensate different actors contributing to the value creation.

When a company using a One-Sided Business Model, realize that it has valuable assets for upstream actors, a Two-Sided Business Model can be very disruptive for an industry characterized by One-Sided Business Models. As an example, when Ryan Air started to charge remote air-ports for bringing passengers, and take percentage on sales from external service providers, while lowering the price of tickets for the passengers to almost 0, the traditional airlines had trouble competing on low cost fairs with One-Sided Business Models.

Mobile phone operator example
In the One-Sided Business Models example, mobile phone operators charged its users for different services. Using a Two-Sided Business Model the operator could for example extract value from the immense amount of data from its users, from companies within the value network that would benefit from the data. Advertisers, brand-owners, developers of applications, content or games, could benefit from the user-data and be willing to pay for it. If Google, as an example, got the data from the operator on where the user is when entering Google Maps using a mobile phone, or who the user last talked to, or who it has in its contact list, maps and adverting could be personalized instantly and probably finance free access to different services, with Google sharing advertising revenues with the mobile phone operator.

Further reading:
One-sided business models
Horizontal business models
Multi-layer business models


  1. So, a tour operator (or say a cruise line), would be a 2-sided model; it gets business both from its clients (via its own marketing channels0 and it has a network of suppliers (travel agents) that feed it with clients. Or would you still call that a one-sided model with 2 different markets?

  2. I would call it a one-sided model with two different markets. If you would start charging restaurants at some islands for bringing passengers I would call it a two-sided model.