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Two-Sided Market Economics & TwoMoreThailand.

Pongsak Hoontrakul
January 2008

Two-Sided Markets Two(Platform Market Competition)
• One-Sidedness same market population choose all products (razors,
razor blades)

• Two-Sidedness network effects cross market populations and each side
does not internalize the welfare impact on other side (document reader, document writer) • Two-sided (or more generally multi-sided1) markets are roughly defined as markets in which one or several platforms enable interactions between endusers, and try to get the two (or multiple) sides “on board” by appropriately charging each side. Indirect Network Effects or Inter-Group Network Externalities Examples: – Night Clubs with Men and Women – eBay with Sellers and Buyers – Credit Card Payment Systems with Merchants and Consumers – Game Consoles with Game Developers and Consumers, etc. –, &

• •

Two-Sided Markets TwoSide A Buyer Reader Player Traveler Wants File Employer Consumer Women

Platform Auction Site Blog Site Game Hardware Portal File Sharing Job Site Fulfillment Service Dating Site

Side B Seller Writer Game Writer Hotelier Has File Employee Merchant Men

Modeled after: Parker, Geoffrey and Marshall W. Van Alstyne (2005), "TwoSided Network Effects: A Theory of Information Product Design," Management Science, 51 (10), p. 1495.


Network Externalities Benefit you get from the network Number of people in the network Group Size and Externalities Metcalf’s Law and Matching: Total Value = n (n-1) = n2 – n (n- Two-Sided Network Externalities TwoExample Benefit you get Size of your group Size of the other side Number of people Two-Sided Networks . 2: B2C and B2b2c Business Concept and Charts for from multiple suppliers to multiple sale channels Booking Engine XML Interface Web Services (SOAP Interface) A2Z CORE SYSTEM •Content Management •Inventory Mgmt •Reservation System •Payment System •Internal control SUPPLY Source: Hoontrakul & Sahadev (2004) Extranet XML Web service THAI HOTELS WHOLE SALERS 2 .com & associate websites B2B2C Affiliate websites Offline Agents Online Retailers B2C Channel B2B Distributors Fig.Total Value Is Nearly Quadratic : 2n1+n2 – n1 – n2 -1 CUSTOMERS B2C & MoreThailand.

benefiting from a common set of suppliers. provides a clear and up-to-date view of market demand 3 . Two-sided B2B Platform Strategy (1) -Two“both side on boards” boards” Demand E-Distribution System (B2C. Business.(see MoreCityHotels. 3: B2C and B2B2C Business Concept & Charts for MoreCityHotels. • Minimizes inventory. IDS and & A2ZproTravel..l Tour operators Wholesalers Travel agents Customers/Traveler – from multiple suppliers to multiple sale channels.) • Leveraging Thailand/Asean for reciprocal hotel inventory basis • Allows participant to buy and sell from partners.CUSTOMERS MorecityHotel. Channel 4 On-line intermediaries Channel 3 Channel 2 Channel . Booking Engine A2Z CORE SYSTEM •Content Management •Inventory Mgmt •Reservation System •Payment System •Internal control SUPPLY Extranet XML Web service Source: Hoontrakul & Sahadev (2004) Asean HOTELS WHOLE SALERS DESTINATION PARTNERS (B2B suppliers ) Figure 4: Channel Distributions for Hotels & Rooms Inventory Hotels. Resorts.. & Associate websites Fig. B2B2c) • Two sided market concept • Buyers single out for Asean hotels • Allows the distributing partners to access content and “real time” inventory • Pre-negotiated prices and contractual terms available • Exclusionary contracts • Predation Price Testing Supply – Indirect Procure-ment EMarket set up • Initial complementary tele-input services for target private hotels • Suppliers multi-homing via GDS.

DMS.6 Content: Growing and Exchanging Local Hotel Inventory. 2. SEM. Achieving B2B platform interconnectivity to reaping network externalities and lock-in effect Differentiation: Proprietary / Self-Developed with “5 C” 2. . knowledge (via RSS).. Call Center. 2. Net Rate room Allotment.1 B2B Commerce: Technological Niches (XML Web services with OTA Std for connectivity.4 Collaboration (Hotel Market Making) : Merchant Model (Prepaid). the theory of two-sided markets is related to the theories of network externalities and of (market or regulated) multi-product pricing. 2. hotel room product… 2. The Questions • Do Inter-Group Network Externalities in Two-Sided Markets Require New Insight and Render Previous Analyses of Tying Less Applicable? – – – – Are There Additional Motives for Tying in TwoSided Markets? Implications for Antitrust Analysis The Role of Multi-homing Vertical vs Horizontal Integration Conceptually.3 Online Transaction Commerce: Web Service based Efficient Digital Process for std. 2.5 Communication: Low Cost Skype. Web Extranet. Travel Knowledge Process Outsources (KPO) by empowering home based travel agents (India) to handle travel advisory services. Tele-Input. Distribution. 2. firm A subsidizes its division that sells complementary goods • As a result – The value of firm A’s product increase – The entry hurdle of firm A’s rivals increases – Possible creation of market power.... Example from computing industry: subsidizing complementary goods (Divide and conquer) • Firm A chooses to make its product incompatible with others • Firm A subsidizes firms that produce complementary goods • Alternatively.Intermediary B2B Platform Strategy (2) 1.2 Collaboration (Sharing): Local content. but action also has pro-competitive justification Tying of complementary products in the presence of network externalities can be used to preserve and create monopoly positions 4 . Reciprocal Inventory. SEO. with our partners and others.

Sasin of Chulalongkorn Univ.6 Million Operational: November 2002 Dr. Pongsak [2005*] ‘Value Revelation in Differentiated Goods in Travel & Pongsak@Hoontrakul.: 662 954 1689 Bangkok Email: Reservation@a2zprotravel. eTourism Case Studies: Management and Marketing Issues in eTourism”. Bangkok * Downloadable freely at www. the company is marketed its products and services in two-sided marketed concept. France Ryan. Bangkok Reference : Hoontrakul.) • Commercially.MoreThailand. • Technically.”.com are integral parts of B2b2c hotel reservation system for Thailand and Asean + 3 destination and travelers. • To leverage on less ICT savvy independent hoteliers.g. Bangkok Hoontrakul President and CEO “To improve productivity in the travel industry and travel related businesses through electronic connectivity” Nontana Thanabutchai Managing Director Mission: “To develop A2Z Professional Travel into a leading online travel firm with an international outlook” Somyos Akahadsri Chief Knowledge Officer 5 . India Rochet. Sasin of Chulalongkorn Univ.Conclusion • MoreThailand. International Journal of E-Business Research. Toulouse. Elsevier Publishing: Chennai. discussion paper. Chapter 11. we are welcome any business development discussion both buy side and sell side for mutual benefits.Hoontrakul..Pongsak. Jean-Charles and Jean Tirole (2005) “Two-sided Markets: A Progress Report”.[2008* forthcoming] “A2Z Professional Travel Ltd: online travel agency in Thailand”.com and A2Zprotravel. Pongsak and Sunil Sahadev [2004*] “ICT Adoption Propensity in the Hotel Industry: An Empirical Study”. Peter and Pongsak Hoontrakul [2004*] ‘An economic analysis of the tourism industry – implications for online travel business’. IDEI and GREMAQ.[2006*] “Online Travel Intermediary: the Case of www. Tel. --------------------. Chulalongkorn Journal of Economics. the system is designed to electronically connected via XML web services n OTA standard to any platform (e... Pooling of talents for knowledge based company Vision: Registered Capital: €1. IDS.

19 73.00 100.00 0.00 1.1 1998 22.00 20.68 86.06 1.9 5.00 43.1 1997 1999 2000 2001 2002 2003 2004 adoption of e-mail based booking in hotels Adoption of e-intermediaries among hotels Adoption of instant web-site bookings among hotels Adoption of GDS among hotels Source: Hoontrakul & Sahadev (2004) 6 .50 50.26 15.19 78.81 19.6 27.10 59.00 100.7 100.09 14.71 13.96 1.54 22.00 represents over 1.31 29.6 94.63 43.00 80.26 18.MoreThailand.00 40.00 60.40 68.79 25.34 18.09 4.3 8.400 hotels nationwide 55% of hotels are in Bangkok and Coastal resorts Independently Owned and Operated Hotels Average number of rooms: 120 rooms Bangkok 229 hotels Pattaya / Koh Chang 130 hotels Koh Samui 98 hotels Phuket / Krabi 315 hotels Average room rate: € 40 Star rated: to Profiles of hotels based on no of rooms Profile of the hotels in terms of age above 250 27% less than 50 18% less than 3 years 25% 13% 19% 19% 9% 7% 8% 0% 5% 10% 15% 20% 25% 3 to 6 150 to 250 9% 100 to 150 12% 50 to 100 34% 6 to 9 9 to 12 Profile of Hotels in terms of room rent/hotel grade 12 to 15 above 5000 14% 4000 to 5000 12% less than 1000bht 3% 1000 to 2000 19% 15 to 18 above 18 3000 to 4000 21% 2000 to 3000 31% Hotels’ Profile in our Sample Hotels’ Source: Hoontrakul & Sahadev (2004) Hotels’ Adoption of e-Sale Distribution Hotels’ e120.

06 1994 1.Hotels’ Adoption of ICT facilities Hotels’ 80 70 60 50 40 30 20 10 0 1.5 6. Any comments are welcome At Email : pongsak@hoontrakul.9 71.6 8.9 38.3 1999 21.06 1995 1.0 26.2 1998 18.00 49.1 1.2 2.5 Adoption of internet centers in hotels adoption of ERPs in hotels Adoption of internet in rooms by hotels Adoption of LAN in hotels Source: Hoontrakul & Sahadev (2004) All in family www.3 24.25 1.4 2000 21.2 12.3 3.1 1997 6.32 13.34 49.A2Zprotravel.06 1996 4.3 4.8 9.13 10.37 3.0 2.27 35.7 13.5 2001 2002 2003 7 .0 family members of online travel booking and content sites END I love emails.