End users apart, every other participating group is a potential complementor, a provider of products or services that are complements to the software platform and that therefore enhance the value of the platform when their quality increases or their price falls.2 Hotel rooms in Las Vegas and flights to Las Vegas are complements; hotel rooms in Las

It is common to bundle together products that are complements, such as automobiles and tires, but firms may find that it pays to bundle products that aren’t complements. We already saw an example of this above. Bundling persuaded two consumers to buy a product even though each wanted only a single component. This saved the manufacturer costs. The i

This sort of pricing would seem to be feasible; perhaps it is not done for the same reason that most U.S. consumers pay a flat monthly fee for unlimited local (land-line) telephone calls: consumers value having a predictable monthly bill and don’t like having to think about the cost consequences of their actions on a minute-by-minute basis.

In a rephrasing of Mr. Katz’s words, Michael Dell told Microsoft upon refusing the Xbox deal offered to him: When Sony cuts the prices on their PlayStations, their stock price goes up. Every time I cut prices, my stock price goes down. If you don’t understand why that happens, you don’t understand the console business. I understand why this is stra

In contrast, economic analyses of multisided platforms, along with the industry case studies discussed in the following chapters, show that successful multisided platform businesses must pay careful attention to all relevant groups, and typically must worry more about balance among them than about building share with one of them.

When balance matters in a mature two-sided business, the pricing problem is much more complex than in a single-sided business. Marginal cost and price responsiveness on both sides matter for both prices, and so does the pattern of indirect network effects. In general, if side A cares more about side B than B cares about A, then, all else equal, A w

Over time, Palm’s metamorphosis from a complete systems provider to a supplier of only operating systems (PalmSource) has been perhaps the most striking. Many platform vendors have been partially integrated into applications, producing some themselves and, in a variety of ways discussed in this chapter, encouraging third parties to produce others.

In retrospect, having multiple operating systems run on a hardware platform is a poor strategy. The idea, of course, was to ensure that the hardware, not the operating system, became the standard that defined the platform and determined its evolution. Indeed, IBM followed an important economic principle for traditional industries: all firms would l

What is the cure? From A’s point of view, one cure is to have many competing producers of good b. Competition will then hold the price of b close to cost (including a reasonable return on capital) regardless of A’s pricing, so that A both effectively determines the system price (via the price of a) and captures all the economic profit. Generally, i