Post date: Aug 21, 2016 11:36:35 PM
Hemant K. Bhargava and Vidyanand Choudhary, “Economics of an Information Intermediary with Aggregation Benefits”, Information Systems Research 15.1 (2004), pp. 22–36.
Many information intermediaries use technology to create multi-sided markets, helping one group of participants (e.g., Buyers) discover and trade with a second group (e.g., Sellers). This paper examines how intermediaries can employ versioning strategy to improve profitability, and suggests a variation of a freemium model, involving a basic product (offered at a lower price) plus a premium product (offered at a higher price). The basic product helps create a large network of participants, thereby increasing cross-network effects and attracting large number of participants on the second side; this in turn increases the value of the premium product which can then serve the purpose of increasing profitability. Such a versioning strategy can be an effective way to address the challenge between having both growth (high number of network participants) and profit.