SlideShare ist ein Scribd-Unternehmen logo
1 von 27
Downloaden Sie, um offline zu lesen
Information Business Models & The News:
When Free Works and When it Doesn’t
                             Doesn t

Marshall Van Alstyne
Visiting Professor, MIT Sloan School
Vi iti P f              Sl    S h l
Associate Professor, Boston University
T: 617-358-3571
E:
E marshall@mit.edu or mva@bu.edu
        h ll@ it d           @b d


 Proprietary & Confidential              © 2009 MIT Center for Digital Business. All rights Reserved.
Revenue Sources before the Web
Revenue Sources before the Web
Classifieds      Advertisements                               Subscriptions




              © 2009 Van Alstyne, Permission granted to 
              redistribute so long as this notice preserved
How does this really
   How does this really work?




                Consider
Content Creation vs. Content Consumption
                                       3
Normal Economic Pricing
        Normal Economic Pricing
• Usually, you lower price
  Usually, you lower price 
  until value on the next                                           xxxx Demand xxxx
  unit sold makes up for                   P
  losses on sales you 
  would have made at a 
  higher price.
  hi h      i                              P

• Free pricing gives up all 
  profits on every unit 
  profits on every unit                    P

  sold.


                    © 2009 Van Alstyne, Permission granted to 
                    redistribute so long as this notice preserved
A network effect stimulates additional demand 
         as consumption increases.


  A “2‐sided” network effect crosses markets from say 
content consumers to creators or creators to consumers. 
  This causes demand in an adjacent market to grow.
  This causes demand in an adjacent market to grow



                  © 2009 Van Alstyne, Permission granted to 
                  redistribute so long as this notice preserved
Consider profits in two markets

                 Market One                                Market Two
               (Acrobat Reader)
               (Acrobat Reader)                         (Acrobat Distiller)
                                                        (Acrobat Distiller)

Charging                                                                        Charging
for
f content
      t t                                                                     for
                                                                              f content
                                                                                      t t
consumption                                                                       creation




          Initially, there are profits to be made in both markets.


                           © 2009 Van Alstyne, Permission granted to                 6
                           redistribute so long as this notice preserved
Consider profits in two markets

                 Market One                               Market Two
               (Acrobat Reader)
               (Acrobat Reader)                        (Acrobat Distiller)
                                                       (Acrobat Distiller)

Subsidizing                                                                    Charging
content
   t t                                                                       for
                                                                             f content
                                                                                     t t
consumption                                                                      creation




         But subsidizing market one can increase profit in market
         two more than enough to cover losses in market one.

                          © 2009 Van Alstyne, Permission granted to                 7
                          redistribute so long as this notice preserved
Consider profits in two markets

                 Market One                                    Market Two
              (Operating Systems)
              (Operating Systems)                             (Developers)

Charging                                                                       Charging
for
f content
      t t                                                                    for
                                                                             f content
                                                                                     t t
consumption                                                                      creation




          Initially, there are profits to be made in both markets.


                           © 2009 Van Alstyne, Permission granted to                8
                           redistribute so long as this notice preserved
Consider profits in two markets

                  Market One                         Market Two
               (Operating System)
               (Operating System)             (Applications Developers)
                                              (Applications Developers)

Charging                                                                  Subsidizing
for
f content
      t t                                                                        t t
                                                                              content
consumption                                                                  creation




          But subsidizing market two can increase profit in market
          one more th enough to cover losses in market t
                   than       ht        l      i      k t two.
                          © 2009 Van Alstyne, Permission granted to              9
                          redistribute so long as this notice preserved
Consider profits in two markets

                  Market One                         Market Two
               (Operating System)
               (Operating System)             (Applications Developers)
                                              (Applications Developers)

Charging                                                                   Subsidizing
for
f content
      t t                                                                         t t
                                                                               content
consumption                                                                   creation




                          Q1                                           Q2
        q1 = Q1 + e21q2 −    p1                     q2 = Q2 + e12 q1 −    p2
                          V1                                           V2
                          © 2009 Van Alstyne, Permission granted to              10
                          redistribute so long as this notice preserved
Getting Free Pricing Right
                     Getting Free Pricing Right
1.         Ability to capture cross‐            1. Mistake of Netscape
           side effects
           side effects
2.         User sensitivity to price &          2. Denver vs. Boston real 
           quality                                 estate markets
3.         Value added                          3. Mistake of Apple
4.         Marginal costs                       4. Mistake of FreePC
5.         Interfering same‐side 
                f i            id               5. Mistake of Covisint
           effects
6.         Marquee providers
           Marquee providers                    6. Mistake of Microsoft
                                                6 Mistake of Microsoft




© 2009 Van Alstyne, Permission granted to 
redistribute so long as this notice preserved
Getting Free Pricing Right
                     Getting Free Pricing Right
1.         Ability to capture cross‐            1. News needs a complement
           side effects
           side effects
2.         User sensitivity to price &          2. Sometimes charge readers 
           quality                                 sometimes writers
3.         Value added                          3. Readers can add value
4.         Marginal costs                       4. Print vs. Digital distribution
5.         Interfering same‐side 
                f i            id               5. Readers can add noise
           effects
6.         Marquee providers
           Marquee providers                    6. Don t alienate Mossberg, 
                                                6 Don’t alienate Mossberg
                                                   Krugman, Dowd…


© 2009 Van Alstyne, Permission granted to 
redistribute so long as this notice preserved
Two‐Sided Platform Markets
  Product Category               Mkt 1 Product                  Intermediary              Mkt 2 Product

 Portable Documents            Document reader*                     Adobe                Document Writer

      Credit Cards              Consumer credit*                 Issuing bank         Merchant Processing

  Operating Systems             Complementary             Microsoft, Apple, Sun        Systems Developer
                                 Applications                                               Toolkits*
         HMOs                 Patient Treatment *        Kaiser, Harvard Pilgrim        Doctors’ Expertise

     Ladies’ Nights             Men’s Admission               Bars, Restaurants       Women’s Admission*

       TV Format                Color UHF, VHF,               Sony, Phillips, RCA     Broadcast Equipment
                                    HDTV*
      Web Search              Web Pages Sought*                 Google, Yahoo          Web Pages Supplied

   Computer games            Game Engine/ Player              Games Publishers            Level Editors*

        Auctions                     Buying*                   E-bay, Christie’s,             Selling
                                                                  Sotheby’s
      Real Estate                Home buyers*            Multiple Listing Service         Home Sellers


* Indicates which market is discounted, free or subsidized.                  Source: Parker & Van Alstyne 2002
                                                                                                             13
What Happened to Papers & Magazines?
What Happened to Papers & Magazines?
Classifieds        Advertisements                Subscriptions




              These are all 2-sided networks   © 2009 Van Alstyne, Permission granted to 
                                               redistribute so long as this notice preserved
Info/News Business Models that Can Work
Info/News Business Models that Can Work

    Info as Process     Platform Value Add




     Credentialing    User Generated Content




                         © 2009 Van Alstyne, Permission granted to 
                         redistribute so long as this notice preserved
Information as Process
                    Information as Process
WSJ Interactive Features
•    State by State Unemployment Rates: http://online.wsj.com/public/resources/documents/JOBSMAP09.html
     State‐by‐State Unemployment Rates: http://online.wsj.com/public/resources/documents/JOBSMAP09.html

•   Immigration Slow Down Data:
•   http://s.wsj.net/public/resources/documents/st_CENSUS0921_20090922.html

•   Timeline Two Years in the Credit Crisis:
    Timeline‐ Two Years in the Credit Crisis:
•   http://online.wsj.com/public/resources/documents/Two‐Years‐of‐Market‐Turmoil.html

NYT Interactive Features
•    2008 Election Results:
•    http://elections.nytimes.com/2008/results/president/map.html
     http://elections nytimes com/2008/results/president/map html

•   The Debt Trap
•   http://www.nytimes.com/interactive/2008/07/20/business/20debt‐trap.html

•   Murder  New York City:
    Murder – New York City:
•   http://projects.nytimes.com/crime/homicides/map




                                      Research support provided by Bryan Woliner
Info/News Business Models that Can Work
Info/News Business Models that Can Work

    Info as Process                                 Platform Value Add




     Credentialing                           User Generated Content




                 © 2009 Van Alstyne, Permission granted to 
                 redistribute so long as this notice preserved
Old Story
                                Old Story

                     Price
                                               Leftover Consumer Value


                        P
                                      Profit

                                       Cost

                                                          Q                  Quantity




© 2009 Van Alstyne           © 2009 Van Alstyne, Permission granted to 
                             redistribute so long as this notice preserved
Marketing Answer: Custom Pricing
 Marketing Answer: Custom Pricing

                     Price
                                              Prices Tailored for Different Segments

                       P1

                       P2
                                      Profit

                                       Cost

                                                          Q                  Quantity




© 2009 Van Alstyne           © 2009 Van Alstyne, Permission granted to 
                             redistribute so long as this notice preserved
Instead Try Custom Information
        Instead Try Custom Information

                       Price                NEW Consumer Value

                         P1

                         P2
                                   Profit

                                   Cost

                                              Q           Quantity


Freebie: Access to Current News
Paid: Save stories, add comments, interactive content, crosswords, search archives,
      custom stock updates
  © 2009 Van Alstyne                                        © 2009 Van Alstyne, Permission granted to 
                                                            redistribute so long as this notice preserved
Info/News Business Models that Can Work
Info/News Business Models that Can Work

    Info as Process     Platform Value Add




     Credentialing    User Generated Content




                        © 2009 Van Alstyne, Permission granted to 
                        redistribute so long as this notice preserved
FiveThirtyEight rates the errors of polls – and 
  produces quite accurate statistical models
  produces quite accurate statistical models




  FiveThirtyEight.com has 17,800 links whereas NYTimes.com has 12,800
Info/News Business Models that Can Work
Info/News Business Models that Can Work

      Info as Process                               Platform Value Add




         Credentialing                            User Generated Content




  © 2009 Van Alstyne, Permission granted to 
  redistribute so long as this notice preserved
Amazon: Most helpful positive and negative ratings of “Audacity of Hope”




Slashdot: Five star “Funny” and “Insightful” comments on Dam Burst
program to get around China’s Green Dam censoring software.
Summary Observations
            Summary Observations
• Use 2‐Sided Networks to understand when free
  Use 2 Sided Networks to understand when free 
  works and doesn’t (content creation / consumption)
   – Can measure tradeoffs and anticipate colliding platforms.
   – Follow the implied pricing rules


• News & Information Business Models
   –   Information as process (can own this!)
   –   Add value to platforms
   –   Credential & Clear‐the‐clutter
   –   User generated content
       User generated content
                       © 2009 Van Alstyne, Permission granted to 
                       redistribute so long as this notice preserved
Van Alstyne Information Economics 
             Research
                    h
  Products &
  Products &       Communications                       Information &
                                                        Information &   Economics of IP &
                                                                        Economics of IP &
Network Effects   Markets (Anti‐Spam)                    Productivity     Open Source




                       © 2009 Van Alstyne, Permission granted to 
                       redistribute so long as this notice preserved
Papers
•   “Information Complements, Substitutes & Strategic Product Design” 
     Information Complements, Substitutes & Strategic Product Design
    Parker & Van Alstyne (2000)  
    http://ssrn.com/abstract=249585


•   “Two Sided Networks – A Theory of Information Product Design” 
    Management Science, 51(10) 2005 pp. 1494‐1504. 
    http://ssrn.com/abstract=1177443


•   “Strategies for Two Sided Markets” Harvard Business Review, 
    Eisenmann, Parker & Van Alstyne (2006) Oct. pp 92‐101. 
    http://hbr.harvardbusiness.org/2006/10/strategies‐for‐two‐sided‐markets/ar/1




                  marshall@mit.edu              mva@bu.edu

Weitere ähnliche Inhalte

Kürzlich hochgeladen

IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfIaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfDaniel Santiago Silva Capera
 
Crea il tuo assistente AI con lo Stregatto (open source python framework)
Crea il tuo assistente AI con lo Stregatto (open source python framework)Crea il tuo assistente AI con lo Stregatto (open source python framework)
Crea il tuo assistente AI con lo Stregatto (open source python framework)Commit University
 
UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8DianaGray10
 
OpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureOpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureEric D. Schabell
 
Spring24-Release Overview - Wellingtion User Group-1.pdf
Spring24-Release Overview - Wellingtion User Group-1.pdfSpring24-Release Overview - Wellingtion User Group-1.pdf
Spring24-Release Overview - Wellingtion User Group-1.pdfAnna Loughnan Colquhoun
 
Digital magic. A small project for controlling smart light bulbs.
Digital magic. A small project for controlling smart light bulbs.Digital magic. A small project for controlling smart light bulbs.
Digital magic. A small project for controlling smart light bulbs.francesco barbera
 
Introduction to Matsuo Laboratory (ENG).pptx
Introduction to Matsuo Laboratory (ENG).pptxIntroduction to Matsuo Laboratory (ENG).pptx
Introduction to Matsuo Laboratory (ENG).pptxMatsuo Lab
 
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve Decarbonization
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve DecarbonizationUsing IESVE for Loads, Sizing and Heat Pump Modeling to Achieve Decarbonization
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve DecarbonizationIES VE
 
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UbiTrack UK
 
Basic Building Blocks of Internet of Things.
Basic Building Blocks of Internet of Things.Basic Building Blocks of Internet of Things.
Basic Building Blocks of Internet of Things.YounusS2
 
RAG Patterns and Vector Search in Generative AI
RAG Patterns and Vector Search in Generative AIRAG Patterns and Vector Search in Generative AI
RAG Patterns and Vector Search in Generative AIUdaiappa Ramachandran
 
Empowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintEmpowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintMahmoud Rabie
 
Cloud Revolution: Exploring the New Wave of Serverless Spatial Data
Cloud Revolution: Exploring the New Wave of Serverless Spatial DataCloud Revolution: Exploring the New Wave of Serverless Spatial Data
Cloud Revolution: Exploring the New Wave of Serverless Spatial DataSafe Software
 
GenAI and AI GCC State of AI_Object Automation Inc
GenAI and AI GCC State of AI_Object Automation IncGenAI and AI GCC State of AI_Object Automation Inc
GenAI and AI GCC State of AI_Object Automation IncObject Automation
 
NIST Cybersecurity Framework (CSF) 2.0 Workshop
NIST Cybersecurity Framework (CSF) 2.0 WorkshopNIST Cybersecurity Framework (CSF) 2.0 Workshop
NIST Cybersecurity Framework (CSF) 2.0 WorkshopBachir Benyammi
 
Designing A Time bound resource download URL
Designing A Time bound resource download URLDesigning A Time bound resource download URL
Designing A Time bound resource download URLRuncy Oommen
 
Linked Data in Production: Moving Beyond Ontologies
Linked Data in Production: Moving Beyond OntologiesLinked Data in Production: Moving Beyond Ontologies
Linked Data in Production: Moving Beyond OntologiesDavid Newbury
 
UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7DianaGray10
 
COMPUTER 10: Lesson 7 - File Storage and Online Collaboration
COMPUTER 10: Lesson 7 - File Storage and Online CollaborationCOMPUTER 10: Lesson 7 - File Storage and Online Collaboration
COMPUTER 10: Lesson 7 - File Storage and Online Collaborationbruanjhuli
 
9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding TeamAdam Moalla
 

Kürzlich hochgeladen (20)

IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfIaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
 
Crea il tuo assistente AI con lo Stregatto (open source python framework)
Crea il tuo assistente AI con lo Stregatto (open source python framework)Crea il tuo assistente AI con lo Stregatto (open source python framework)
Crea il tuo assistente AI con lo Stregatto (open source python framework)
 
UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8
 
OpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureOpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability Adventure
 
Spring24-Release Overview - Wellingtion User Group-1.pdf
Spring24-Release Overview - Wellingtion User Group-1.pdfSpring24-Release Overview - Wellingtion User Group-1.pdf
Spring24-Release Overview - Wellingtion User Group-1.pdf
 
Digital magic. A small project for controlling smart light bulbs.
Digital magic. A small project for controlling smart light bulbs.Digital magic. A small project for controlling smart light bulbs.
Digital magic. A small project for controlling smart light bulbs.
 
Introduction to Matsuo Laboratory (ENG).pptx
Introduction to Matsuo Laboratory (ENG).pptxIntroduction to Matsuo Laboratory (ENG).pptx
Introduction to Matsuo Laboratory (ENG).pptx
 
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve Decarbonization
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve DecarbonizationUsing IESVE for Loads, Sizing and Heat Pump Modeling to Achieve Decarbonization
Using IESVE for Loads, Sizing and Heat Pump Modeling to Achieve Decarbonization
 
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
 
Basic Building Blocks of Internet of Things.
Basic Building Blocks of Internet of Things.Basic Building Blocks of Internet of Things.
Basic Building Blocks of Internet of Things.
 
RAG Patterns and Vector Search in Generative AI
RAG Patterns and Vector Search in Generative AIRAG Patterns and Vector Search in Generative AI
RAG Patterns and Vector Search in Generative AI
 
Empowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintEmpowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership Blueprint
 
Cloud Revolution: Exploring the New Wave of Serverless Spatial Data
Cloud Revolution: Exploring the New Wave of Serverless Spatial DataCloud Revolution: Exploring the New Wave of Serverless Spatial Data
Cloud Revolution: Exploring the New Wave of Serverless Spatial Data
 
GenAI and AI GCC State of AI_Object Automation Inc
GenAI and AI GCC State of AI_Object Automation IncGenAI and AI GCC State of AI_Object Automation Inc
GenAI and AI GCC State of AI_Object Automation Inc
 
NIST Cybersecurity Framework (CSF) 2.0 Workshop
NIST Cybersecurity Framework (CSF) 2.0 WorkshopNIST Cybersecurity Framework (CSF) 2.0 Workshop
NIST Cybersecurity Framework (CSF) 2.0 Workshop
 
Designing A Time bound resource download URL
Designing A Time bound resource download URLDesigning A Time bound resource download URL
Designing A Time bound resource download URL
 
Linked Data in Production: Moving Beyond Ontologies
Linked Data in Production: Moving Beyond OntologiesLinked Data in Production: Moving Beyond Ontologies
Linked Data in Production: Moving Beyond Ontologies
 
UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7
 
COMPUTER 10: Lesson 7 - File Storage and Online Collaboration
COMPUTER 10: Lesson 7 - File Storage and Online CollaborationCOMPUTER 10: Lesson 7 - File Storage and Online Collaboration
COMPUTER 10: Lesson 7 - File Storage and Online Collaboration
 
9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team
 

Van Alstyne Presentation

  • 1. Information Business Models & The News: When Free Works and When it Doesn’t Doesn t Marshall Van Alstyne Visiting Professor, MIT Sloan School Vi iti P f Sl S h l Associate Professor, Boston University T: 617-358-3571 E: E marshall@mit.edu or mva@bu.edu h ll@ it d @b d Proprietary & Confidential © 2009 MIT Center for Digital Business. All rights Reserved.
  • 2. Revenue Sources before the Web Revenue Sources before the Web Classifieds Advertisements Subscriptions © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 3. How does this really How does this really work? Consider Content Creation vs. Content Consumption 3
  • 4. Normal Economic Pricing Normal Economic Pricing • Usually, you lower price Usually, you lower price  until value on the next  xxxx Demand xxxx unit sold makes up for  P losses on sales you  would have made at a  higher price. hi h i P • Free pricing gives up all  profits on every unit  profits on every unit P sold. © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 5. A network effect stimulates additional demand  as consumption increases. A “2‐sided” network effect crosses markets from say  content consumers to creators or creators to consumers.  This causes demand in an adjacent market to grow. This causes demand in an adjacent market to grow © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 6. Consider profits in two markets Market One Market Two (Acrobat Reader) (Acrobat Reader) (Acrobat Distiller) (Acrobat Distiller) Charging Charging for f content t t for f content t t consumption creation Initially, there are profits to be made in both markets. © 2009 Van Alstyne, Permission granted to  6 redistribute so long as this notice preserved
  • 7. Consider profits in two markets Market One Market Two (Acrobat Reader) (Acrobat Reader) (Acrobat Distiller) (Acrobat Distiller) Subsidizing Charging content t t for f content t t consumption creation But subsidizing market one can increase profit in market two more than enough to cover losses in market one. © 2009 Van Alstyne, Permission granted to  7 redistribute so long as this notice preserved
  • 8. Consider profits in two markets Market One Market Two (Operating Systems) (Operating Systems) (Developers) Charging Charging for f content t t for f content t t consumption creation Initially, there are profits to be made in both markets. © 2009 Van Alstyne, Permission granted to  8 redistribute so long as this notice preserved
  • 9. Consider profits in two markets Market One Market Two (Operating System) (Operating System) (Applications Developers) (Applications Developers) Charging Subsidizing for f content t t t t content consumption creation But subsidizing market two can increase profit in market one more th enough to cover losses in market t than ht l i k t two. © 2009 Van Alstyne, Permission granted to  9 redistribute so long as this notice preserved
  • 10. Consider profits in two markets Market One Market Two (Operating System) (Operating System) (Applications Developers) (Applications Developers) Charging Subsidizing for f content t t t t content consumption creation Q1 Q2 q1 = Q1 + e21q2 − p1 q2 = Q2 + e12 q1 − p2 V1 V2 © 2009 Van Alstyne, Permission granted to  10 redistribute so long as this notice preserved
  • 11. Getting Free Pricing Right Getting Free Pricing Right 1. Ability to capture cross‐ 1. Mistake of Netscape side effects side effects 2. User sensitivity to price &  2. Denver vs. Boston real  quality estate markets 3. Value added 3. Mistake of Apple 4. Marginal costs 4. Mistake of FreePC 5. Interfering same‐side  f i id 5. Mistake of Covisint effects 6. Marquee providers Marquee providers 6. Mistake of Microsoft 6 Mistake of Microsoft © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 12. Getting Free Pricing Right Getting Free Pricing Right 1. Ability to capture cross‐ 1. News needs a complement side effects side effects 2. User sensitivity to price &  2. Sometimes charge readers  quality sometimes writers 3. Value added 3. Readers can add value 4. Marginal costs 4. Print vs. Digital distribution 5. Interfering same‐side  f i id 5. Readers can add noise effects 6. Marquee providers Marquee providers 6. Don t alienate Mossberg,  6 Don’t alienate Mossberg Krugman, Dowd… © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 13. Two‐Sided Platform Markets Product Category Mkt 1 Product Intermediary Mkt 2 Product Portable Documents Document reader* Adobe Document Writer Credit Cards Consumer credit* Issuing bank Merchant Processing Operating Systems Complementary Microsoft, Apple, Sun Systems Developer Applications Toolkits* HMOs Patient Treatment * Kaiser, Harvard Pilgrim Doctors’ Expertise Ladies’ Nights Men’s Admission Bars, Restaurants Women’s Admission* TV Format Color UHF, VHF, Sony, Phillips, RCA Broadcast Equipment HDTV* Web Search Web Pages Sought* Google, Yahoo Web Pages Supplied Computer games Game Engine/ Player Games Publishers Level Editors* Auctions Buying* E-bay, Christie’s, Selling Sotheby’s Real Estate Home buyers* Multiple Listing Service Home Sellers * Indicates which market is discounted, free or subsidized. Source: Parker & Van Alstyne 2002 13
  • 14. What Happened to Papers & Magazines? What Happened to Papers & Magazines? Classifieds Advertisements Subscriptions These are all 2-sided networks © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 15. Info/News Business Models that Can Work Info/News Business Models that Can Work Info as Process Platform Value Add Credentialing User Generated Content © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 16. Information as Process Information as Process WSJ Interactive Features • State by State Unemployment Rates: http://online.wsj.com/public/resources/documents/JOBSMAP09.html State‐by‐State Unemployment Rates: http://online.wsj.com/public/resources/documents/JOBSMAP09.html • Immigration Slow Down Data: • http://s.wsj.net/public/resources/documents/st_CENSUS0921_20090922.html • Timeline Two Years in the Credit Crisis: Timeline‐ Two Years in the Credit Crisis: • http://online.wsj.com/public/resources/documents/Two‐Years‐of‐Market‐Turmoil.html NYT Interactive Features • 2008 Election Results: • http://elections.nytimes.com/2008/results/president/map.html http://elections nytimes com/2008/results/president/map html • The Debt Trap • http://www.nytimes.com/interactive/2008/07/20/business/20debt‐trap.html • Murder  New York City: Murder – New York City: • http://projects.nytimes.com/crime/homicides/map Research support provided by Bryan Woliner
  • 17. Info/News Business Models that Can Work Info/News Business Models that Can Work Info as Process Platform Value Add Credentialing User Generated Content © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 18. Old Story Old Story Price Leftover Consumer Value P Profit Cost Q Quantity © 2009 Van Alstyne © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 19. Marketing Answer: Custom Pricing Marketing Answer: Custom Pricing Price Prices Tailored for Different Segments P1 P2 Profit Cost Q Quantity © 2009 Van Alstyne © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 20. Instead Try Custom Information Instead Try Custom Information Price NEW Consumer Value P1 P2 Profit Cost Q Quantity Freebie: Access to Current News Paid: Save stories, add comments, interactive content, crosswords, search archives, custom stock updates © 2009 Van Alstyne © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 21. Info/News Business Models that Can Work Info/News Business Models that Can Work Info as Process Platform Value Add Credentialing User Generated Content © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 22. FiveThirtyEight rates the errors of polls – and  produces quite accurate statistical models produces quite accurate statistical models FiveThirtyEight.com has 17,800 links whereas NYTimes.com has 12,800
  • 23. Info/News Business Models that Can Work Info/News Business Models that Can Work Info as Process Platform Value Add Credentialing User Generated Content © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 24. Amazon: Most helpful positive and negative ratings of “Audacity of Hope” Slashdot: Five star “Funny” and “Insightful” comments on Dam Burst program to get around China’s Green Dam censoring software.
  • 25. Summary Observations Summary Observations • Use 2‐Sided Networks to understand when free Use 2 Sided Networks to understand when free  works and doesn’t (content creation / consumption) – Can measure tradeoffs and anticipate colliding platforms. – Follow the implied pricing rules • News & Information Business Models – Information as process (can own this!) – Add value to platforms – Credential & Clear‐the‐clutter – User generated content User generated content © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 26. Van Alstyne Information Economics  Research h Products & Products & Communications Information & Information & Economics of IP & Economics of IP & Network Effects Markets (Anti‐Spam) Productivity Open Source © 2009 Van Alstyne, Permission granted to  redistribute so long as this notice preserved
  • 27. Papers • “Information Complements, Substitutes & Strategic Product Design”  Information Complements, Substitutes & Strategic Product Design Parker & Van Alstyne (2000)   http://ssrn.com/abstract=249585 • “Two Sided Networks – A Theory of Information Product Design”  Management Science, 51(10) 2005 pp. 1494‐1504.  http://ssrn.com/abstract=1177443 • “Strategies for Two Sided Markets” Harvard Business Review,  Eisenmann, Parker & Van Alstyne (2006) Oct. pp 92‐101.  http://hbr.harvardbusiness.org/2006/10/strategies‐for‐two‐sided‐markets/ar/1 marshall@mit.edu mva@bu.edu