Multi-Sided Markets are Complex, Therefore Slow to Emerge

Single-sided markets are relatively simple: there is just one type of buyer. Internet service providers, mobile service providers and fixed network service providers are examples.

There are other models, though, even in the network services business. Cable TV operators, for example, operate in two-sided markets, earning revenue both from end users and business partners.

Many of the newer markets service providers are entering, or have entered, are much more complicated. Those multi-sided markets require construction of more-complex value chains, and therefore take longer, and are tougher, to successfully create, according to Rajesh Kandaswamy, Gartner analyst.

Many of the hoped-for new businesses, such as any ways network services are exposed to third parties, are two-sided models, where revenue is earned from end users and business partners. That’s a more-complex business, creating multiple required ecosystem connections.

For a service provider hoping to earn revenue from advertising or content delivery network services, for example, service providers must maintain a critical mass of customers that advertisers want to reach, and then entice marketers to pay money to reach those prospects.

Some of the new revenue streams might be even more complicated. A connected car service, for example, could be a one-sided business (where a mobile service provider sells only to a automobile manufacturer), or a two-sided business, where a service provider sells direct to its existing customers, as well as to a partner auto manufacturer.

Mobile payments so far represent the most complicated, multi-sided ventures. The current system already has many participants. Card holders, card issuers (bank), card networks (Visa / MasterCard), merchants, and acquirers (banks and processors) are the primary stakeholders.

By definition, a payment network is multi-sided. Adding mobile payments inserts the mobile service provider into the value chain as well, and may or may not pose a threat of competing with other participants.

Multi-Sided Payment Ecosystem

In the simplest possible implementation of mobile payments, the mobile phone replaces the plastic card.

In a more-disruptive scenario, mobile services actually displace one or more of the existing participants.

But any multi-sided market is more complex to create or modify since it requires agreement of other participants in the value chain, some of which might resist the change, precisely because entry of the mobile payments participant can cannibalize revenue or threaten displacement of an existing provider from a role in the value chain.

That is one reason why mobile payments will take some time to develop as a mass market.