On Thu, Dec 2, 2010 at 4:28 PM, Steve Gibbard <scg@gibbard.org> wrote:
Regardless of whether the apartment broker comparison holds up, there are many examples of what economists call two-sided markets:
http://en.wikipedia.org/wiki/Two-sided_market
They don't all have the same fee-splitting systems, and you can find an example to site as precedent for just about any system you could reasonably advocate. An example raised in a talk I heard a few years ago was of scholarly journals that collect money from both their subscribers and their authors. The authors need to be published in order to get tenure, and the readers pay because they want to know what the authors are saying.
Hi Steve, You've picked a poor example. I had some exposure to that earlier in my career. The rags you're talking about tend to have very poor reputations in academia, and while they do have an official cover price, they have virtually no paid readership. Like unaccredited correspondence classes, they exist primarily to help young and second-tier scientists flesh out their CV's. In fact, if you go through the list in the first paragraph on your referenced Wikipedia article you'll find that most of them have a well defined paying customer on one side and what you might refer to as an "entity of importance to the customer" on the other. The yellow pages for example - the advertisers are the customer. The recipients are important to the customer (hence important to the publisher) but they are not the customer and they don't pay for the phone book. As an eyeball network, the content providers are certainly entities of importance to your customer. But if the yellow pages is your reference, that's all the more reason the content providers shouldn't have to pay you. That having been said, there are some examples of your two-sided markets that are relevant. Here's three: 1. The newspaper. You pay for a copy. The advertisers pay to put ads in it. 2. The telephone. You pay for a phone. Anyone who wants to call you also pays. 3. The credit card. You pay annual fees, interest charges and late fees. The merchant also pays a transaction fee. So, let's scrutinize these examples for insight into how they could apply to an ISP wanting to bill both Joe Blow and Netflix. 1. The newspaper. Yep, they certainly burn both ends of the candle. And in a -strongly competitive market- they're dying for it in the face of TV news and web sites which don't. But dig a little closer... the majority of their revenue on the recipient side is folks buying the paper for the articles. The ads are merely along for the ride. Indeed, the consumer rarely buys a publication primarily for its paid advertising -- examples exist but are fleeting. The publications which do consist of solely paid advertising tend to arrive in the consumer's mailbox without charge. Lesson: you can bill the content provider if the consumer doesn't care about receiving his content AND is receiving enough content you buy for him that he's willing to keep paying you. Helpful for the ISP situation? Yeah - it says if you can get one side of the market to give you, for free, what the other side is willing to pay for, you're ahead of the game. Don't get greedy! 2. The phone. This has been around the regulatory block a few times, usually to the phone company's detriment. The ILECs were compelled to set an interconnect tariff that allowed all comers with exactly the same terms. So the they said, "well, we don't want little competitors cherry picking office buildings so we'll set the tariff as originator-pays per minute." And then ISPs came along with massive receive-only call banks and lo and behold some of the little competitors figured out they could make enough money requiring the telco to pay them minute charges to give the phone lines to the ISPs for free. Lesson: Trying to get money from both ends while a monopoly can be a long and tortuous road to regulatory hell. 3. The credit card. Wait a minute, what do you mean the merchant pays the bank a percentage of each transaction? The merchant doesn't pay the bank anything! The consumer (the customer) pays the bank, the bank keeps part of it and then the bank pays the rest of it to the merchant. And you better keep them both happy -- you face stiff competition from cash. Lesson: In a competitive environment, being the billing agent for the supplier can be a value add. But that doesn't exactly help you when you think you want the supplier to pay you too.... Regards, Bill Herrin -- William D. Herrin ................ herrin@dirtside.com bill@herrin.us 3005 Crane Dr. ...................... Web: <http://bill.herrin.us/> Falls Church, VA 22042-3004