Value Network View on Digital Marketplace

Abstract

A digital marketplace is a virtual platform that creates values by managing the interaction between two-sided networks or markets, consumers and producers or suppliers to transact. It provides both sellers and buyers to transact cheaply, quickly and conveniently. Digital marketplaces have created significant impacts and disruptions in many industries all over the world. As digital marketplace firms provide innovative and efficient business models, they may disrupt conventional firms that rely on physical interactions. Equip with virtual communications through digital platforms, digital marketplace firms can grow quickly and pose a serious threat to conventional firms. This chapter discusses network externalities, two-sided markets, and value network theories and how these theories can be applied to view digital marketplace firms in setting their expansion strategies. Some digital marketplace business models and how these models operate will also be discussed.

Key Terms in this Chapter

Two-Sided Markets: Two-sided or in general multi-sided markets are two or more different but related markets managed by an intermediary or platform in which the growth of one side market is highly influenced by the other side.

Business model: A concept that describes the mechanism of a firm that creates and delivers value to customers and making profits through the payment of the value.

Value Network: A value configuration in which value is created through providing connection or mediating interactions with consumers.

Network externalities: Network externality or network effect is the effect of additional consumers or users of a particular product or service on the utility of existing consumers or users to the same product or service.

Digital Marketplace: A platform that governs interactions between two or more different markets and creates different values for different market and captures those values mainly through subscription and/or commissions.