Do You Really Want to Be an eBay?

Lured by the success of marketplaces such as eBay, many companies have tried operating as multisided platforms, which let buyers and sellers transact directly with one another. But resellers--which acquire and then resell products and services--often fare better. To determine the right position on the continuum between pure reseller and pure multisided platform, companies must consider four factors: 1) Scale effects. Amazon draws on its formidable scale economies as a reseller for high-demand items but serves as a multisided platform for low-demand products. 2) Aggregation effects. Resellers can extract value from buyers by bundling products and exploiting complementary relationships between them, as Apple has with its iTunes-iPod combination. 3) The buyer and seller experiences. As Zappos realized in its early days as a multisided platform, some buyers do not want to deal with multiple sellers. And individual sellers might have a better experience selling to a reseller than to a buyer in a marketplace. 4) Market failures. Many multisided platforms have avoided collapse by using mechanisms that keep buyers and sellers honest. It can take more than one move for a company to reach its optimal position: Companies that should ultimately be multisided platforms sometimes need to start out as resellers and vice versa. And as the competitive landscape changes, managers must be diligent about reevaluating their position.

• Business models
• Competitive strategy
• Sales and marketing