Return on IT investments in two-sided markets

In two-sided markets an intermediary brings together two distinct customer populations, such as buyers and sellers on an e-commerce platform. In these markets the growth process of customer populations depends on network effects both within and between buyers and sellers. Thus, assigning IT investments to customer populations and quantifying the monetary value of these investments is complex. We show that measuring the intermediary's platform value may provide a remedy, and make IT investments in two-sided markets accountable. Thereby, we develop a model for the platform value and the growth process of customer populations accounting for network effects in two-sided market. We apply our model to an e-commerce platform. Our results highlight a significant contribution of buyers to the platform value. Analysing former IT investments we find further evidence to rather invest in buyers than sellers, and to promote investments that increase buyers' trust in products, intermediary and trading partners (sellers). © 2010 Kraemer, Hinz & Skiera.