The race to become the next e-business platform is on. Amazon, Google, eBay, Yahoo! and Microsoft are the key players and several billion dollars are at stake!
All of them compete in what is called multi-sided markets using business platforms. A multi-sided market should serve two or more groups of customers. For example, credit card companies serve both shoppers and merchants or shopping malls that bring together shoppers and merchants. Another necessary condition is that these customer groups must benefit from the mediating platform (create network effects). For example, if more retailers decide to carry a particular credit card, the more benefits to the customer carrying the credit card. By using the platform, all parties must derive a clear and tangible benefit. For example, they can create value through efficiency gains and creation of options that provide flexibility to deal with evolving uncertainty. A final condition that we have identified is the creation of control points.
A multi-sided market has a platform that provides value to consumers and enterprises trying to reach consumer via advertisements and developers. Google’s platform, for example, provides search services that are appreciated by end customers searching for information. At the same time, they provide advertisers with the ability to present relevant information to the consumer. Advertisers are interested in providing information to Google's customers (Google does this using the AdWords and AdSense platform). Another constituent they support is the developer who provides services that work on top of Google's platform. For example, Prudential has a service to show listed properties in the Chicago area and they present property information using Google Earth. Currently, Google provides API-based access to developers.
Google also benefits from what are called network effects. As a result, as more people use Google for searches, more advertisers come to it. More advertisers create more relevant sponsored links and this results in greater revenues for Google and this revenue gets invested in better search engine technology and better search engine results in more advertisers and so on. Here is the puzzle: should Google charge every one (other than end-users) per API call or should they simply charge the advertisers a transaction fee for any ad served to the end-user?
Another key concept, borrowed from Microsoft is architectural control. Control points are the set of components within the platform that are vital to the creation and appropriation of value. Google provides third party complementary service providers with easy access to their services and that they can use to build applications that work on top of Google's platform. These firms constitute the developer community that is vital to Google's success. As more developers use Google's facilities to launch applications, consumers find more value in using Google's search engine. Google's services are also used by firms to build their brand and advertise on the Internet. These firms use products that are provided by Google or by a third party developer to sell their wares to customers who use Google as their search engine. All of them derive tangible benefits. Customers find relevant search results and ads. Developers are launching applications productively by reusing and extending Google's services. Firms using AdSense for serving up ads can also use its reporting facilities to track effectiveness of campaigns. Since all applications have to call Google's search engine, using public APIs that have to be invoked every time, to get relevant results, Google controls how much and how many times any given user can call its APIs. This gives it architectural control over its ecosystem partners.