3.4 Multi-sided business model
This fourth type of business model requires the firm, or any other organisation, to provide different products or services to different customer groups. The defining feature of this business model is that one group of customers gets benefits from the other group’s use of a certain product or service, thus making the value proposition multi-sided. Free newspapers are a typical example of this business model. Readers receive the newspaper for free (customer B), which is paid for by advertisers (customer A). As such, the use of free newspapers by the first group of customers (readers) as a marketing tool generates a positive externality for the second group of customers. The newspaper itself benefits from gaining a wider readership which attracts more companies that want to pay the newspaper for advertising.
The multi-sided model is also high-risk, high-reward. Although failure rates are high, so are potential profits. Watch the animation below to see how this process works.
Another example of firms using this business model is that of companies harvesting data from their customers (group B) to resell it to new customers (group A). The US life insurance company John Hancock announced in 2018 that it would add an option to all its policies to track the policyholder’s fitness online – via a website, app or the use of a fitness tracker such as Apple Watch or Fitbit – to better adjust the pricing of its policies based on the health information provided. There are serious ethical and legal concerns if data protection guidelines are not followed. Week 3 explores data issues related to drone technologies.
But how can the multi-sided business model be relevant in the use of drones in agriculture, forestry and rural areas? It’s not straightforward to apply this type of business model to create value in this case, but below is a possible example that could work, at least in theory! It might even inspire you to put it into practice!
The multi-sided business model can be used by any organisation acting as the ‘platform organiser’ (see Animation 4) connecting farmers (customer A) and drone manufacturers (customer B). The organiser provides drone related training and services to farmers. Farmers do not have to pay for these services. The services are paid for by the drone manufacturers on the platform. The manufacturers in turn benefit by advertising and promoting their drones on the platform. The ‘platform organiser’ can collect and analyse the farmer data and sell them as consumer profiling to drone manufacturers. Consent has to be obtained in advance for such data analysis and re-use.