Acknowledgments
Since around 2000, we have been working on multisided platform businesses not only as economists contributing to the literature and authors of leading surveys of the field, but also as consultants to multisided platforms ranging from global giants to unfunded start-ups. This book reflects the knowledge and insights we have developed over that time. Our debts to fellow economists, entrepreneurs, and executives for shaping and deepening our understanding of these businesses are enormous. We could never possibly mention or even remember everyone who has contributed to this book.
We have to start, though, with our friends and colleagues Jean-Charles Rochet and Jean Tirole, who shared an early draft of their pioneering paper on multisided platforms with us and who have been a source of inspiration and ideas ever since. Since 2000, many other economists have contributed to the literature on multisided platforms. We have learned a tremendous amount from their work. We would especially like to thank Andrei Hagiu and Glen Weyl, both for their brilliant papers on the economic theory of multisided platforms and for numerous enlightening discussions we have had over the years.
Diane Schmalensee, a well-known marketing professional and exceptionally thoughtful critic, read drafts of this book, as well as many of our earlier writings, and made valuable suggestions and edits.
(regarding retail). Working with Karen, we have also learned a lot from advising early-stage multisided platforms and from a couple of platforms she has started and led.
Howard Chang, who has been an invaluable colleague for many years, reviewed the final manuscript and made valuable edits and comments and, as usual, kept us from making mistakes, though neither he nor anyone else can be blamed for any that nonetheless remain. Alexis Pirchio did an admirable job, under tight deadlines and with many other obligations, in coordinating the research for this book. Other contributors to the research effort include Clara Campbell, Madeleine Chen, Maria Eugenia Gonzalez, Federico Haslop, Steve Joyce, Scott Murray, Nick Venable, Juan Pablo Vila Martinez, and Vanessa Zhang. Amanda Depalma did an exceptional job turning our primitive drawings into many of the figures in the preceding pages.
We have benefited enormously from insightful guidance and detailed edits that have improved our exposition provided by Lisa Adams, our literary agent, as well as Jane Gebhart, our copyeditor. Tim Sullivan from Harvard Business Review Press has been incredibly supportive and has worked closely with us in shaping Matchmakers.
Last, and of course not least, our wives have provided love and encouragement that has been essential for writing this book as well as for just about everything else in our lives.
About the Authors
David S. Evans and Richard Schmalensee have done pioneering research into the new economics of multisided platforms and have contributed widely to the academic and business literature on the topic. They collaborated on a trilogy of major books concerning matchmakers and their impacts: Paying with Plastic: The Digital Revolution in Buying and Borrowing (2005); Invisible Engines: How Software Platforms Drive Innovation and Transform Industries (2006); and Catalyst Code: The Strategies Behind the Worlds Most Dynamic Companies (2007). Their writing has been informed and enriched by many years of advising new and established matchmakers.
David is an economist, business adviser, and entrepreneur. He cofounded, and helps lead, two consulting organizations: Global Economics Group, which provides economic expertise on antitrust and regulatory matters, and Market Platform Dynamics, which advises companies on multisided platform strategies. He is also Chairman of PYMNTS.com, a multisided media and data analytics platform he cofounded. He has consulted for many of the largest multisided platform businesses in the world and served as an adviser to a number of start-up matchmakers. In addition, David has an active academic career. At the University College London he is Executive Director of the Jevons Institute for Competition Law and Economics as well as a visiting professor. He is also a lecturer at the University of Chicago Law School. David is the author, coauthor, or editor of ten books and has written more than one hundred scholarly articles, many of which address the economics of entrepreneurship, business dynamics, and multisided platforms. He is a graduate of the University of Chicago, from which he earned a BA, an MA, and a PhD, all in economics.
Richard is the Howard W. Johnson Professor of Management and Economics, Emeritus, at the Massachusetts Institute of Technology and served for nine years as dean of the MIT Sloan School of Management. A former member of the Presidents Council of Economic Advisers, Richard is one of the worlds leading scholars on the economics of industrial organization and its application to government policy and business strategy. He is the author or coauthor of twelve books and more than 130 scholarly articles. He was the 2012 Distinguished Fellow of the Industrial Organization Society. Richard is Chairman of Market Platform Dynamics and has served on the boards of several matchmakers, including the International Securities Exchange and the International Data Group. He advises matchmakers worldwide on strategic issues. He holds a PhD as well as an undergraduate degree in economics from MIT.
Chapter 1
A Table for Four at Eight
How a Matchmaker Took the Friction out of Restaurant Reservations
I ts Saturday morning in the summer of 1998. Julie Templetons mom and dad are coming into town the next weekend. She and her husband, Chuck, want to treat them to a gala restaurant weekend in San Francisco, with dinners out Friday, Saturday, and Sunday nights.
Julie starts dialing for reservations. No answer. She leaves a message. She keeps calling, restaurant after restaurant. Some dont have anything on the evenings she wants. One she wants to go to on Sunday isnt open. Almost four hours later, after a lot of calling and juggling, shes got the weekend planned.
Back then, making dinner reservations was hard. Taking them was, also. Most restaurants still took reservations over the phone. Someone wrote them down with a pencil, on paper, in a notebook. Often, tables went empty if the phone didnt ring enough. Restaurants had no way to let people know when they had tables available.
Julie Templetons persistence paid off. Most people, though, just arent willing to work that hard to get a restaurant reservation. As a result, in 1998, on a typical Saturday night in San Francisco, there were unhappy couples sitting at home, perhaps having takeout pizza, who had given up trying to get a table for their date night, and unhappy restaurant owners with tables sitting empty, not making ends meet in a tough business.
The market for matching up diners with tables at restaurants wasnt working very well. Restaurants and diners spent a lot of resourcestime and effortgetting together, and even so tables went empty and diners stayed home. Thats the sort of problem that an important, but until recently overlooked, type of business sets out to solve by helping parties who have something valuable to exchange find each other, get together, and do a deal.
Multisided Platforms
In 1998, this important type of business didnt have a name. Thats surprising, in retrospect. Many businesses had been built to reduce these sorts of market frictions, which economists tend to call transaction costs. Their basic business model had been around for thousands of years. But business schools didnt teach classes on how to start or run businesses that help different parties get together to exchange value. Economists didnt have a clue how these businesses worked. In fact, the companies that reduced these market frictions charged prices and adopted other strategies that economic textbooks insisted no sensible business would do.
