2.4 The multisided business model

In this triadic business model, the firm is a platform organiser and provides different products or services to different groups of customers. The feature of this model is that a group of customers get benefits from the use of the product or service by the other group.

A first group of customers is called consumer beneficiary. They receive a product or service at a price that is below the cost because the difference is paid by a second group of customers, named paying customers. This latter group gain benefit from creating value for the consumption of the first group.

Typical examples of this business model are free newspapers, where the consumer beneficiary receives the newspaper for free, paid by advertisers (paying customers). The two customer groups create complementarities between each other. Facebook also clearly embodies this business model, providing users with free access to a social network and making revenues from advertisers whose offers are targeted to specific groups of customers.

Another example is services provided to customers in exchange for their data, which are of interest to a second group of customers, who use the data to do marketing analyses and research. This is the case for firms that collect credit data from their customers: that data is then used by other paying customers to offer loan services to clients.

The following animation exemplifies the functioning of the model.

Managing this business model means controlling how the two groups of customers receive benefit from the consumption of the other. To be successful in this business model it is important to:

• identify beneficiaries—the diverse groups of people or organisations which in some way may be interested in an offered product or service
• identify products and services beneficiaries may be interested in
• determine how the consumption takes place
• produce a benefit for beneficiaries.

In Activity 3, you will be introduced to the business model of a non-profit organisation, Shelter. This charity operates in the UK helping homeless people to find support. In the following video, Shelter CEO, Polly Neate, explains how Shelter works.

Activity 3 Beneficiaries of Shelter

Timing: Allow about 25 minutes

Part 1

Watch the video and try to identify the different types of beneficiaries interested in the activities of Shelter.

Download this video clip.Video player: Video 2

Show transcript|Hide transcript

Transcript: Video 2 Business model of Shelter

POLLY NEATE:

I think the first thing that's really important to say about charities in the UK is that the UK has become totally dependent on charities to deliver public services. Without understanding that, it's not possible to understand the modern charity sector. So in the US, for example, a lot of support for the public. I mean, the actual public sector is tiny by comparison. And a lot of support for people is funded through philanthropy.

In the UK, a lot of what we call public services are provided by charities through contracts with the public sector. And we at Shelter are an example of that. So we have some funding, which is contracts with in our case, local authorities. But central government, health bodies, all kinds of public sector bodies fund charities to provides support for people. So an example of that might be in shelter, we might have a local contract to provide advice to people who become homeless in that local authority, even though what you have to do when you're homeless is present to the local authority, and supposedly they will help you.

What actually happens is their funding shelter to provide that help to people who have been registered as homeless within that local authority area. And that is very common right across the sector. And there are some charities, quite a large number of charities now in the UK, who are solely dependent on that sort of funding. So what they do is they provide public services under contract to the state.

At Shelter, we also very importantly fund raise among the public. So that gives us independence. So if you're funded by the state to do something, you can't use that money to do other things. You can only use it to fulfil that contract.

At Shelter, we absolutely can't meet our purpose if that's all we do. So we're totally dependent on fundraising in order to undertake the vast majority of the work that we do. Another important thing to understand about charities in the UK and Shelter in particular, is that the most reliable form of voluntary income or fundraised income donations that we have is multiple large hundreds of thousands of donors who are all giving us small monthly donations every month.

So the most important donor to Shelter is an individual who gives us 3 pounds, five pounds, 10 pounds a month on an ongoing rolling basis. And that gives us a predictable source of independent income that we can use to achieve our purpose that is not dependent on what the state is wanting us to do. And it also gives us independence that we can speak truth to power and say what we like to and about the state, because we're not solely dependent on the state for our funding.

So a typical person who donates, and these are our absolute most important donors, are people who give us 5, 10 pounds a month regularly, are mainly, but not entirely, people aged 50 plus who have the level of disposable income to be able to give regularly to a charity out of their income. So that is most of our regular givers. Another very important source of income for us is legacies.

So the people who leave us legacies are mainly people who were around at the founding of Shelter in 1966, for whom they really remember the film Cathy Come Home and all the publicity that followed that, and the founding of Shelter. And they kind of realised that Shelter is still around fighting the fight and want to leave us money in their will. That's an incredibly important source of income for Shelter.

Our typical corporate donor would be a company with a real mission synergy with Shelter. So good example would be B&Q. It's all about people being secure and happy in their home. That's very much their brand, very much our brand. So there's a real sort of synergy there.

So usually with corporates, there's some form of, kind of brand synergy between them and the charity they support. Our major donors tend to be people who've made a lot of money and who want to give something back and realise that not everyone is as fortunate as themselves, or have come from origins where they were very much aware of the issues that we deal with, but have now moved on in life and made a lot of money and want to give something back because of that.

End transcript: Video 2 Business model of Shelter

Download

Video 2 Business model of Shelter

Interactive feature not available in single page view (see it in standard view).

While watching the video, you may have noted that Shelter’s business model involves diverse beneficiaries including homeless people, public sector, local authorities and donors. Would you think Shelter is a multisided business model? Why? Write down your interpretation of Shelter’s business model in the box below.

To use this interactive functionality a free OU account is required. Sign in or register.

Interactive feature not available in single page view (see it in standard view).

Part 2

Now watch Video 3, in which Professor Baden-Fuller interprets the business model of Shelter.

Download this video clip.Video player: Video 3

Show transcript|Hide transcript

Transcript: Video 3 Discussing Shelter’s business model

PROFESSOR CHARLES BADEN-FULLER:

People become homeless for all sorts of reasons. The people who are homeless have all sorts of different kinds of needs. So Shelter is involved in legal work, involved in advice, involved in consulting, involved in lobbying for the government for better laws. This is a wide range of services that Shelter is involved with.

And these different services are so broad and so extensive that we need to source many different sources of money, some from government, some from donations, some from companies who are involved in similar kinds of activities. So we have to draw together a lot of resources to deliver a lot of services to achieve the result.

As a result, we have quite a large charity, turnover is 65 million, employing 1,500 people. Reaching six million people through our website. Reaching hundreds of thousands of people through help lines. Reaching thousands of people through direct contact. It's a complex organisation with a complex set of needs, our complex sources of revenues, and a complex business to run.

The business model of Shelter is quite similar to the business model of many UK charities. And UK charities are really interesting because this is a country where two things are happening. First of all, there is a very large amount of the underbelly of society that is in need of assistance. The government of Europe, and of UK included, wants to give services to that community, but the size of the government sector is being shrunk for political and economic reasons. And so charities perform a very key role in delivering government services to contracts.

So that's a very simple product star business model, a customer the government is paying for the charity to deliver services to a group of people who are getting it for free. I suppose you could call it multi-sided, but it's a kind of product model. But charities in the UK also do a lot of things because they believe it's right to do it and society needs it. And that involves political campaigning and doing all sorts of work for the needy, which might not be funded by the government.

And this is a more traditional view of charities around the world. This two sets of things, lobbying and giving services, which are needed by people, but are not going to be funded by anyone else, is the classic part of charity. This is two-sided in the sense that the donors who are giving money to support the charity are allowing the recipients of the charity to get the services for free. And the donors are feeling a personal connection with the people who are getting the benefits. And the people who are getting the benefits want to give something back by their behaviour to the donors.

And let me explain that in the context of Shelter. In the context of Shelter, the donors are often people who are giving relatively small sums of money, 10 pounds a month, not that small, but the point is that doing it over a long number of years. And they do it because they make contact with homeless people in the streets. They meet homeless people. They read about the homeless problem. And so they feel a very strong connection of wanting to help this group in society.

The recipients of the charity benefits, because these are long-lived charities, often are being given a helping hand, which is critical. A lot of these people have actually had good times and fall on hard times for all sorts of circumstances, maybe family breakup, maybe some external event, which is unusual, made them homeless. They often when they have received a benefit and got back on their feet want to give back and they join the group of donors in the future. So this is a truly connected to two-sided business model which is going on.

End transcript: Video 3 Discussing Shelter’s business model

Download

Video 3 Discussing Shelter’s business model

Interactive feature not available in single page view (see it in standard view).

Does your interpretation agree with what Baden-Fuller has argued? Note down your thoughts in the box below.

To use this interactive functionality a free OU account is required. Sign in or register.

Interactive feature not available in single page view (see it in standard view).