Pricing Strategies of Platform Business
As platform builder, pricing is one of the most important decision that you should consider. There are 4 platform pricing strategies you should know, and we will briefly describe them in this article.
cross sides effect, sensitivity of price, sensitivity of quality and output cost.
Pricing Strategies of platform business
Went through many document of Andrei Hagiu, we can point out some price strategies:
The cross sides effect: which mean the percieved value of the platform which was decided by subsidizing other sides. but beware of the investment could be wasted if that mechanism doesn’t work.
The sensitivity of price: subsidy side(s) has no reason to pay high or event don’t have to pay, because they are the beneficiary in the platform compared to money sides. For example, console gamers, they’re the beneficiary in the ecosystem which include platform provider, developers and gamers. Platform providers such as Microsoft Xbox or Sony PlayStation sole their consoles lower than the cost they produced consoles to attract gamers to their platform. With higher number of gamers on platform, it could attract more game developers.
The sensitivity of quality: another option, instead of charging the side who requires high quality, platform owner may charge the side who provides quality. Why? The tutor-finding platform could be an example. Tutors (supply-side) have to ensure their online profiles is up-to-date to stand out as good candidate. And therefore, poor lack-information profile will be ignored. Then, platform provider can charge tutor for an extra amount to bring tutor’s profile to feature.
The output cost: nowaday, technology strongly supports business, especially platform business. There are approximately zero cost to maintain or to have new voluntary-user for good supply-side platform.
Other factors of platform business
The same side competition: Does platform provider treat all money-side players fairly same? It occasionally doesn’t. Supply-side (money sides) would feel less pressure about the competition. They would stay loyalty on the platform when they have less competitors. For example, Microsoft Windows Phone store is the case. When developers published their apps to Windows Phone stores, they soon realized that their app consumption higher. It was because Windows Phone users have less choices of app.
The valuable users: Key influencer users may play an important role to attract other users. On our platform, we might benefit some key influencers to attract more their followers.
K. Beckers, A. Ibrahim, P. Kumari, and A. Pretschner, “Platform Business Models,” in Digital Mobility Platforms and Ecosystems, Munich, Germany: Technical University of Munich, 2016, pp. 66–77.
Andrei Hagiu. “Multi-Sided Platforms: From Microfoundations to Design and Expansion Strategies.” Harvard Business School Working Paper, No. 07-094, May 2007.
Andrei Hagiu, “Strategic Decisions for Multisided Platforms” MIT Sloan Management Review, vol. 55, no. 2, Jan. 2014.