Matchmakers: A book review by Bob Morris

MatchmakersMatchmakers: The New Economics of Multisided Platforms
David S. Evans and Richard Schmalensee
Harvard Business Review Press (June 2016)

How to help those with a need for a product or service to connect with those who can provide it,

The concept is obviously simple, one than can be traced back to the ancient markets in Athens and Rome as well as throughout Egypt where goods and services were also exchanged on the same cashless premise: by barter. Establish a location (a “platform”) where those in need of a product or service are able to connect with those who can provide it. Today the Web provides (by far) the best meeting place for buyers and sellers of almost everything. Payments are processed electronically.

In Platform Revolution: How Networked Markets Are Transforming the Economy–And How to Make Them Work for You, Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary pose two interesting questions: How can a major business segment be invaded and conquered in a matter of months by an upstart with none of the resources traditionally deemed essential for survival, let alone market dominance? And why is this happening today in one industry after another?’

Here’s the answer to both questions: “the power of the platform,” a new business model embraced by Airbnb, Uber, Alibaba, and Facebook’and previously by Amazon, YouTube, Wikipedia, iPhone, Upwork, Twitter, KAYAK, Instagram, and Pinterest, among others. As is also true of the Worldwide Web that Tim Berners-Lee devised more than twenty years ago, the platform’s core functions are connectivity and interactivity. Its overarching purpose is to “consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.”

Unlike the traditional linear value chain, platforms scale more efficiently and more quickly by eliminating gatekeepers; unlocking new sources of value creation supply and demand; using data-based tools to create community feedback loops; and centering on people, resources, and “functions that exist outside the operations of a platform business” such as Uber, “complementing or replacing those that exist inside a traditional business” such as a taxi cab company.

If possible, Platform Revolution and Matchmakers should be read in combination. Yes, David Evans and Richard Schmalensee discuss several of the same companies and address some of the same issues but, as I think the co-authors of both books agree, the importance of understanding the new economics of multisided platforms — and then leveraging that understanding — requires as much information, insights, and counsel as can be obtained.

These are among the dozens of passages of greatest interest and value to me, also listed to suggest the scope of Evans and Schmalensee”s coverage:

o Frictions (Pages 7-20)
o OpenTable (7-8 and 9-14)
o Critical Mass (9-14 and 69-83)
o Network Effects (21-31)
o Microsoft (26-27 and 106-110)
o Apple (126-127 and 142-143)
o Internet Service Providers (45-47)
o Creative Destruction (49-51)
o YouTube (73-76)
o eBay and Pay Pal (81-82)
o AT&T (113-114)
o Alibaba (158-161)
o Ecosystems (100-121)
o Amazon (105-106)
o Aventura Mall (121-122 and 129-133)
o Design and Value (121-133)
o Externalities (128-140)
o Governance Systems (135-148)
o Apple Pay (149-150 and 156-164)
o M-PESA Financial Services (167-181)

Evans and Schmalensee provide a brilliant examination of one of the most interesting business developments during the last decade: the matchmaker company, one “that helps two or or more different kinds of customers find each other an engage in mutually beneficial interactions. Matchmaking does not involve literally finding matches for people” like the old village matchmaker would try to do for a potential marriage ‘ but rather finding good trading parties. A payment card network, for example, helps retailers and customers get together and transact by using the same, agreed-upon payment method.’

They examine dozens of example of these “mutually beneficial interactions.” The Web also plays a major role by facilitating, indeed expediting transactions almost anywhere, almost anytime, between and among almost any organizations and/or individuals. I commend David Evans and Richard Schmalensee on the abundance of uniquely valuable information, insights, and counsel in their book, provided within a lively and eloquent narrative.

Whatever the size and nature of a platform may be, it serves two timeless and timely functions: connection and interaction. Needs and interests are certain to change in years to come and the same is true of products and services as well as of the technologies and systems involved. I have no idea what the platforms will look like but I am certain there will be matchmakers then who share much in common with matchmakers today.

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