Competition of Service Marketplaces: Designing Growth in Service Networks

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Conte, Tobias; Blau, Benjamin; Xu, Yongchun
Service networks; Service mashups; Revenue distribution; Network effects; Management Information Systems
conference paper description
The cloud computing paradigm gives rise to Web service marketplaces where complex services areprovided by several modular vendors. Recently more and more intermediaries are pushing onto themarket, thereby driving competition. Offering innovative business models which are capable ofattracting service providers and consumers is a reasonable strategy to beat competitors and to takeadvantage of network effects. We develop a mechanism that introduces a novel way of distributingrevenues among service providers – the power ratio. Its underlying presumption is not only tocompensate service providers who actually contribute to a complex service offered at a time, but alsoto pay out partners who are on standby – i.e. vendors that support the network’s variety and stability,but actually do not contribute to the complex service delivered. We show that a payment function thatis based upon the power ratio is a promising approach to draw in service providers as it outperformsa payment function that rewards vendors merely based on their actual allocation in terms of expectedpayoffs for different types of service vendors.