Network Effect Of Instant Message Industry Based On Two-Sided Market Theory

The industry competition in 21 century is becoming severe. Under some research, we found that the competition between some industry with large proportion of service and third industry is not simply in single companies but like rivalry between business ecosystem. For an example, media industry is the general two-sided industry with two-sided platform features. The two-sided industry is composed of two-sided platforms and two-sided end users. Different from traditional manufacturers whose consumers are on one side, media platform should both attract viewers or readers to join the platform and drive advertisers and content suppliers to join the platform. With the cooperate operation of platform, end users in two or three sides implement the interaction as buying and selling trade or information exchange. Besides focusing on the total price, platform also focus on the price structure on both sides'interaction and end users transaction behavior. The industry of Instant Message has such a character of two-sided market.From the view of Instant message market, User's demand will be influenced by platform's function,quality and scale of users at present while the demand of advertisers are also influenced by the other side users. Those advertise mainly supported media platform such as newspaper magazine, broadcast and television station generally set up skewed pricing. They choose to set higher price (advertise rate per page) for advertisers and lower or even below cost or zero price for consumers such as cover price of newspapers and magazines and annual information fee of cable casting and cable TV. The circulation or audience rating is the key factor to attract advertisers to advertise in the platform. And to keep the certain amount of audience on the side of platform must use high quality content information. From the perspective of instant message,the high quality platform attracts users for free, so that they attract enough advertisers to join in the platform, and also the platform can make profit by charging add_value service.This paper tried to implement empirical research to point out the existence and the power of network effect on two sided end users using the example of instant message industry. Try to answer those qustions below: First, Is there existence of network effect on the two sided market in the instant message industy? Second, what's about the power of network effect. Third, what's about the leading relation between end users from two sided market. Fourth ,is instant message industry a two sided market?Use data from Tencent company which enjoys high status in instant message industry in china to point out in statistic method and descriptive method the network effect. What's the relationship between the rising advertisers'utility and software end users, the rising advertisers and software end users'utility. From the research result , we know that : 1) with the rise of software end users, the platform's network advertisement revenue is raising, which shows that the advertisement price and number is going up. The network effect exists between to end users, and the power of network effect is 2.53 2)Also concluded that the increase of software users is the cause of more advertisers which join the platform and the high network advertisement revenue, and more advertisers is not the reason of increasing software users 3) Instant message market is a two sided market.