Developing network effects for digital platforms in two-sided markets – The NfX construction guide

Abstract

Context: What do Uber Ride, Airbnb Lodging, and eBay Marketplace have in common? All three platform business models generate extensive network effects (NfX) between providers and consumers. Network effects are the magic force that turns a single taxi service agency into a provider for an entire mobility market. Objective: The goal of this paper is to present an approach, namely the NfX Construction Guide, that enables the design of virtuous circles of network effects in two-sided markets for platform business models. Method: The research design we used to develop the NfX Construction Guide is inspired by action research and follows a technical action research method, by exploring the guide's applicability in a real-world project of a digital platform for smart rural areas. Contribution: The contribution of this paper is an approach, validated with ecosystem experts, that enables practitioners to design virtuous cycles of network effects for platform business models. Our results are summarized in reflective learnings about the applicability of the proposed approach.

Keywords

• Network effects
• Virtuous cycles of network effects
• Digital platforms
• Platform business model
• Construction kit