For the past year or so, the Chicago startup scene (and Built In Chicago as an extension) has focused on the Chicago-ness of startups. Sort of a meta-blog about startups in Chicago themselves. I wrote a post which reflected this sentiment. This is in contrast with talking about entrepreneurial/startup topics, and simply doing that in the context of Chicago. I think (and hope) we're nearing the point where the Chicago-ness of the conversation should be incidental.
It's in that spirit that I'm writing the post below. It's a reaction to a research report published by Kellogg Professors (yay Chicago) but my intention is to reflect on (and hopefully get other people excited about) the dynamics of different types of marketplaces. This research is extremely relevant to startups working on marketplaces and how they think about their strategies.
Kellogg Insights recently published Why Markets Tip to One Platform (or Not). The article offers an interesting insight on the value of “horizontal” marketplaces and how they can lead to markets not tipping to one platform. The article is definitely worth reading, but for this post, I want to offer an alternative hypothesis for why the markets didn’t stay fragmented in the early experiments.
The main premise that defined professor Minor, Hossain, and Morgan’s research was this:
Signs of whether and when a market may tip are closely watched by both economists and regulators. Yet as the PC wars showed, there may be little warning that a market might tip. In fact, tipping may only be obvious when it has already happened. By the same token, no one is certain why markets such as online dating have not tipped. That is in part because tipping is little understood.
They describe the first experiment they did:
In the lab, they first constructed a number of different markets in which participants could choose one platform over another…In each period, the players selected a platform based on their type [e.g., buyer or seller] and the respective payoff each platform offered…Minor and his colleagues adjusted the markets such that half would tip and half would coexist.
Oddly, nearly all of them tipped. Even when platforms and their payoffs were identical—which should have encouraged people to stick with their first choice—players still converged on one platform. “Tipping was so pervasive,” Minor says. “We were very puzzled.” Whatever fosters coexistence seemed to be missing from their experimental markets.
I have some thoughts on what might “foster coexistence” and doesn’t sound like it was included in the experiment. In the first set of experiments, the article talks about the cost of switching from one platform to another. I’m wondering if the experiments that tested the impact of the cost/benefit of being on multiple platforms at once. E.g., in the video game market, the publishing side of the market (video game companies) usually publish to all three platforms, making it a relatively even playing field from the consumer’s perspective.
Similarly, it’s not prohibitively difficult to be on two dating networks (it’s usually free for the first few months and then a relatively nominal fee). It is prohibitively expensive to be on the consumer side of the market on multiple gaming platforms, which is why someone usually chooses a single platform (but the same games are usually available for the reason above).
At the time of the Microsoft vs. Apple, the programming languages available to develop applications were vastly different, meaning that to create software packages for both platforms would essentially require writing the same program twice — prohibitively expensive for most companies. Likewise, buying two computers was prohibitively expensive for most people. As a result, if there were specific programs that had been developed for mac that you absolutely needed, you got a mac. If there were specific programs for PCs, you got a PC. My piano teacher had a Mac because it had a great music writing program.
If players in the experiments were not allowed to be on multiple platforms, it does seem possible that there would be a high probability that one platform would win out in many cases. However, if players were allowed to select > 1 platform, I think that the cost/benefit of being on multiple platforms would be a huge contributor to whether one platform or many wins out.
Please let me know what you think in the comments section below.
Matthew Hartman is founder of ReferBoost, which provide social media and brand management tools for the residential real estate rental market.
bio: matthewhartman.com
blog: nonsequitorial.com
twitter: @matthartman
