July-August 2024
Harvard Business Review recently published an article co-authored by Andrei Hagiu, Associate Professor of Information Systems, discussing marketplace businesses achieving strong competitive positions due to network effects.
Entrepreneurs and investors aim to build or support new marketplaces across various sectors, such as StockX for sneakers and OpenSea for NFTs. However, not all marketplaces can defend against competitors; success depends on factors like seller differentiation, market fragmentation, and added value through discovery and transactions.
Marketplace businesses such as Amazon, Booking.com, and YouTube achieve strong competitive positions through network effects, where more buyers attract more sellers and vice versa.
“Network effects are stronger when sellers are differentiated in the eyes of buyers,” Hagiu and his co-author add, highlighting the significance of differentiation and discovery.
Understanding these factors is crucial for building and investing in sustainable and defensible marketplaces.
