Disintermediation on multi-sided platforms

Abstract

The rise of multi-sided technology platforms has eased the transactions happening between the users and service / product providers. These platforms provide multiple platforms to both the users and the providers. The users get more information about the charges / prices charged by other providers, the quality of services provided and thus reduces the information asymmetry. Such platforms also increase the competitiveness amongst the providers and thus improve the overall quality of service received by the users. There are also benefits for the providers through the use of these platforms. The service providers get access to a larger consumer audience than they would have otherwise. In such a situation, if one of the providers opts out of the platform, he is bound to lose his customers to other providers. This brings all the providers to be on the platform. This in turn also benefits the users, bringing more users to the platform. Multi-sided platforms tend to display positive cross-sided network effects. Higher the number of users, more service providers want to be on the platform. And higher the number of service providers, a greater number of users want to join the platform. The platforms sustain themselves by charging a convenience fee / commission to either the user or the provider or both for enabling the interaction to happen between them. This increases the cost of service for the user and decreases the earnings of the service provider for the service being provided. This increases the tendency of the users and providers to take the transaction off-the-platform once they have connected. This disintermediation process increases the earnings for the service provider and decreases the cost of service for the user. Disintermediation is one of the major challenges faced by multi-sided platforms globally since disintermediation decreases their major source of revenues for most platforms. Platforms globally have been forced to shut down due to declining revenues on account of this, without a decrease in the costs. However, many platforms have developed mechanisms to decrease disintermediation and thus forcing / motivating the consumers and service providers to complete the transaction through the platform without bypassing the platform and thus protecting the revenues. For example, rental space provider AirBnB decreases disintermediation on its platform by discouraging sharing of contact information on the chat, not revealing the name of the property owner to the customer until the transaction is completed via AirBnBand other such measures. Utility service provided Urban Company decreases disintermediation on its platform by providing insurance against damages to the customer.