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Lecture 9

ECON 208 Lecture Notes - Lecture 9: Youtube, Root Mean Square, Ebay

Economics (Arts)
Course Code
ECON 208
Paul Dickinson

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Lecture 3
Implementation of two-sided platform pricing strategies.
(1) Exchanges
• EBay is the classic example of a successful two-sided exchange network. They charge both listing fees
and transactional fees to their sellers.
• Chemdex provided an online marketplace for sales of chemicals, enzymes, lab equipment, biotech
products like peptides, and many types of chemical reagents. Chemdex signed up nearly 150,000 users
who ordered products from more than 2,000 suppliers. The Chemdex database listed around a million
products from beakers to specialty biochemicals.
(2) Software systems
• Adobe’s revolutionary price model was to give away the reader for free and make people pay
for Adobe Distiller.
• Open table charged restaurants to join its reservation service. After a $1000 to $1300 system
setup fee, restaurants paid $100 to $200 a month plus $1 for each honored reservation. This
restricts the number of restaurants that it can sell for. Customers receive reward points. For
each reservation a customer made, they earned $1. By 2009, Open table has served 75 million
diners at 8,400 restaurants.
(3) Content Markets
• Platforms have to decide whether to charge people or use an advertising based model. This is
not always obvious.
• Facebook’s big challenge is to think of a way of monetizing the interaction between users and
advertisers. The key issue they face is privacy concerns.
Challenges with two-sided platform pricing.
(1) Make sure that you are subsidizing an attractive group of customers
• FreePC learned this lesson in 1999 when it provided computers and Internet access at no cost
to consumers who agreed to view Internet delivered ads that could not be minimized or hidden.
Unfortunately, few marketers were eager to target consumers who were so cost-conscious.
FreePC abandoned its offer after losing $80 million.
• may just have the wrong kind of content to successfully monetarize. Too much is
highly personal.
(2) Product supply issues
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