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David S. Evans & Richard Schmalensee

Catalyst code

Many of the world's most successful companies have acted as "business catalysts", profiting by bringing together distinct customer groups on a shared platform. Examples include eBay, which has created an online empire by facilitating auctions for buyers and sellers; Amazon.com, which began as an e-retailer and now profits by allowing other merchants to use its business systems; Visa, which has expanded by encouraging merchants and cardholders to use the same transaction platform; Microsoft, whose Windows operating system generated significant revenue in applications business; Google, which offers a free search engine funded by advertisers aiming to reach its users; Simon Properties, a mall developer that brings retailers and shoppers together in an appealing environment; and The Wall Street Journal, which publishes content that attracts readers and, in turn, advertisers. In essence, these catalysts are the new power brokers in the business world, and their strategy is worth emulating. To build a successful business catalyst, there are six steps involved.

Catalyst code
Catalyst code

book.chapter Business catalysts: a comprehensive overview

In the realm of physics, a catalyst is a substance that instigates or speeds up a reaction between two or more entities. This concept is mirrored in the business world, where business catalysts stimulate or expedite commercial transactions between two or more customer groups that would not have otherwise interacted. These customer groups, while needing each other, would not be able to connect without the catalyst's intervention. Business catalysts create attractive and user-friendly platforms that draw in and benefit both parties involved in the transaction. In essence, catalysts have emerged as the new power brokers in business. Unlike traditional businesses that operate on a one-sided value chain, catalysts create a platform that draws in multiple customer groups. These groups then utilize the platform to deliver value to each other, brought together more efficiently by the catalyst than they would have been otherwise. While most companies earn profits by manufacturing products or providing services that customers are willing to pay for, catalysts have a variety of revenue generation methods, such as charging for platform access, levying participation fees, collecting commissions on successful interactions, acting as matchmakers, and providing search services. Business catalysts perform three core functions: acting as matchmakers by creating a common marketplace where different customer groups can find each other cost-effectively; building audiences, as the platform's value increases with the number of participants; and minimizing costs by developing facilities and capabilities that all platform users can share, thereby eliminating duplication and spreading development costs over a wider user base, leading to significant cost efficiencies. Having a shared platform that everyone can use also facilitates its use, as everyone is already familiar with its operation. To ensure long-term success, catalysts must perform three key activities: creating a compelling value proposition through persuasion, pricing, and product design; facilitating searches and providing information so that people from both sides of the business can find each other cost-effectively; and devising rules and standards to maintain a structured marketplace and prevent it from devolving into chaos. Catalysts also ensure that no illegal activities occur that might jeopardize the platform's future availability

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