Two-sided Market and Third-Party Payment Platforms- Background Perspective
The two-sided market is understood as a deviation from the traditional market. Some examples of a two-sided market are where two distinct set of users are tied together in a market setting where both benefit. An example is newspapers. Newspapers are printed out and there is a certain revenue cost associated with the publishers (Eisenmann et al., 2006). The publishers benefit when people subscribe to the newspaper. In people subscribing to the newspapers, there would be some advertisers, too. Advertisers actually benefit from subscribing and make revenue when the newspaper is published. Another example of two entities connected together as a network is that of HMO’s. HMO links people to a web of health care providers. Vice versa, it links health care providers to respective patients. A two-sided market with two distinct entities is created at this point.
Value Creation for Clients
In a proper definition of how the two-sided market works, the differentiation of values is important. In the case of the traditional form of network, the values are directed from left to right. Therefore, a company manufactures things and there is a certain cost incurred by the company. This is one the left, and a movement in value to the right results in revenue. The left to right movement in value creation, with respect to one company and its users or subscribers is the traditional market. In the case of the two-sided market, the value is not necessarily one directional. Therefore, two sets of users are benefitted. The cost and revenue are present on both the left end and the right end. This is because of the distinct set of users on either end. The two-sided network platform hence identifies two sets of users with value being dispersed across either sided. Often it is the platform that is hosting the two-sided network which incurred most costs and seen to serve both groups (Eisenmann et al., 2006). The platform for successful operation of the two-sided network might require both the sets of users to subscribe to platform, or enrol for a small cost, or pay a percentage in transactions, etc. They might also end up subsidizing costs at one end as well based on the form of two-sided network.
Third Party Payment Portals defined in the context of Two Sided Markets
The third-party payment platform in the context of two sets of users considers them as the buyer and the seller (Eisenmann, et al., 2006). A third-party transaction is one where there are a buyer, a seller, and a third-party. The third-party acts as a facilitator of the transaction by enabling a payment portal or some other form of payment service (Rysman, 2009). The form of payment involvement will vary based on the kind of business transaction, but usually it is a monetary transaction. An online payment portal like PayPal for instance will act as a third-party portal for people who want to use it to pay other ecommerce sites. PayPal is heavily used in retail transactions among others.
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