Functionality-rich versus minimalist platforms: a two-sided market analysis

By: 
Soumya Sen, Roch Guerin, and Kartik Hosanagar
Appears in: 
CCR October 2011

Should a new "platform" target a functionality-rich but complex and expensive design or instead opt for a bare-bone but cheaper one? This is a fundamental question with profound implications for the eventual success of any platform. A general answer is, however, elusive as it involves a complex trade-off between benefits and costs. The intent of this paper is to introduce an approach based on standard tools from the field of economics, which can offer some insight into this difficult question. We demonstrate its applicability by developing and solving a generic model that incorporates key interactions between platform stakeholders. The solution confirms that the "optimal" number of features a platform should offer strongly depends on variations in cost factors. More interestingly, it reveals a high sensitivity to small relative changes in those costs. The paper's contribution and motivation are in establishing the potential of such a cross-disciplinary approach for providing qualitative and quantitative insights into the complex question of platform design.