Many of the breakthrough products and services in existence today are platforms which connect two or more distinct classes of customers in a network. This blog post explores some of the foundational elements of such platforms and their applicability to identity federation.
These days I spend a lot of time thinking about motivations and incentives for organizations that deliver online services and people who use them. That in turn has drawn my attention to multi-sided platforms who bring together two or more distinct but interdependent groups of customers.
Such platforms are of value to customers on “one side” only if the customers on the “other side” are present; the platform itself provides value by facilitating interactions between the two sides. Such a platform increases in value to the extent it attracts more and more of these two groups of customers, a phenomenon economists call the network effect.
A classic example of such a platform is Google, which acts as a platform to connect advertisers with web searchers (consumers).
Google has three customer pools which are web searchers (consumers), advertisers and content owners. Google’s value proposition to advertisers depends on attracting large number of consumers to its site, which it does so via its search platform as well as services such as Gmail, Google Maps etc. It has also developed the AdSense service which allows content owners to get a cut of Google’s ad revenue by showing Google ads on their site. Finally, via its AdWords service it provides advertisers a very targeted capability to display advertisements and sponsored links. Google subsidizes consumers and content owners to bring them into the fold while charging advertisers who want ready access to the consumers and content owners.
The key point to note is that multi-sided platforms often face a “chicken and the egg” problem to bring the two (or more) customer pools to the table. The way that they address this problem is by subsidizing one of customer pools to attract and bring them to the platform. The challenge that the network operator faces is in determining which side to subsidize and how to set the appropriate pricing to attract customers.
Applying this to an identity federation environment, the two customer pools that a platform operator needs to bring together are relying parties and end-users. In an earlier blog post, when I was thinking about the chicken and the egg problem, I noted that many considered the customer pools in a federation as relying parties and credential service providers (CSPs). After thinking through it a lot more, I believe that is not correct (even if the CSPs would like it to be so). As I was putting this blog post together, I also received a ping from Andrew Hughes, who in response to that earlier blog post, provided a pointer to a presentation he had made at the last IDESG plenary that noted the same thing.
When developing a business model for a multi-sided platform, its operators would be well served by asking some critical questions:
- Are we relying on assumptions and paradigms that apply only to products/services without network effects?
- Can we attract sufficient number of customers for both sides of the platform?
- Is one side more price sensitive than the other?
- Is the price sensitive side a potential “subsidy” side?
- Can the other side of the platform generate enough revenue OR find enough value in the platform to cover the subsidies?
I am still thinking through various aspects of this. I would appreciate any pointers to additional resources on this topic.
- Strategies for Two-Sided Markets, Harvard Business Review, October 2006
- Federated Credential Use - A Tale of Poultry and Public Sector
- Andrew Hughes: ID Ecosystem Framework Overview (Slide 20)
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This blog post first appeared on Anil John | Blog (https://blog.aniljohn.com). The opinions expressed here are my own and do not represent my employer’s view in any way.