Many companies are basically markets – they add value by intermediating between buyer and seller. One can describe such companies along a spectrum of how much “Market Power” they have over transactions. With each increase in Market Power comes both more overhead per customer, and more revenue per dollar transacted. Minimal Market Power companies often collect under 1% of the price paid, while Absolute Market Power ones can collect 90% or more.
Minimal Market Power
Description: Either the buyer or the seller has no interaction with you. Transactions are not tracked. Market is essentially just a database, listing buyer or seller information.
Business Model: Charge flat fees to either buyer or seller, depending on which interacts with you. Display advertising is also done.
Examples: Craigslist, Monster.com, store bulletin boards
Limited Market Power
Description: Both buyer and seller must register with you. Information about what is being purchased and when is routed through you as an intermediary.
Business Model: Charge percentage fees to buyer, seller, or both.
Examples: eBay (before PayPal), Alibaba
Medium Market Power
Description: Buyer pays you directly, instead of paying the seller themselves.
Business Model: Deduct your commission from the payment to the buyer.
Examples: eBay (now), AirBnB, Sotheby’s, Amazon (marketplace)
High Market Power
Description: Buyer and seller are matched by you, instead of presenting a “menu” of options. Prices are negotiated with you, not the other party.
Business Model: Buy cheap, sell expensive – price is marked up between buyer and seller.
Examples: MetaMed, law firms, accounting firms
Absolute Market Power
Description: Buyer has no knowledge of seller – you act as a “black box”. Sellers are employees, subsidiaries, or wholesalers, and must use you (or a similar service) to reach buyers. Can blur the line between intermediating and manufacturing.
Business Model: Charge whatever market will bear; no relation between buyer price and seller price.
Examples: IBM, SAP, hospital surgery, Amazon (main)