Most online shopping platform firms generate revenue from three sources: pay-per-click search advertising, pay-per-impression display advertising, and membership fees. The strategies that influence these revenue sources typically are studied individually, rather than in a holistic fashion. In response, this study uses time-series data with 18 million buyers and sellers from 2010 to 2011 and undertakes a quasi-experiment to analyze how the distinct effects of buyer- and seller-side strategies on revenues (1) vary across all three revenue sources and (2) depend differentially on a platform’s upmarket repositioning strategy. The results show that buyers that purchase through direct traffic (e.g., typing in the site address) yield more display advertising and membership fee revenues than those gained through organic traffic (e.g., landing from a search engine). Engagement strategies that appeal to established sellers (i.e., value-added services) yield more search advertising and membership revenue than those that appeal to new sellers (i.e., social forums). An upmarket repositioning strategy (i.e., eliminating low quality sellers) enhances the revenue effects of buyer traffic generation and seller engagement strategies. Post hoc analyses suggest that a 1% increase in direct traffic generates an additional $151,506 in display advertising revenue after (vs. before) the repositioning.

The popularity of online shopping platforms, such as eBay, Rakuten, and Alibaba, is growing exponentially. According to an industry analysis, these two-sided platform companies “receive valuations two to four times higher . . . than companies with other business models” and are outperforming competitors in both their growth rates and profit margins (Libert, Wind, and Fenley 2014). Firms that participate on these shopping platforms often rely on a business model in which their services are available for free to buyers, but they extract profits from sellers. Accordingly, online platform firms collect revenues from sellers in three main ways: pay-per-click search advertising, pay-perimpression display advertising, and membership fees (Edelman 2014). To increase their revenue from these sources, the platform firms employ traffic generation strategies to bring buyers to the site, as well as seller engagement strategies to attract, enhance, and maintain sellers in the shopping journey. Yet extant research typically takes a piecemeal approach and addresses one revenue source at a time (Fang et al. 2015; Tucker and Zhang 2010). Instead, the primary objective of this article is to determine the relative revenue effects of buyer- and seller-side strategies across all three platform revenue sources simultaneously. Managers are interested in the revenue effects of specific, micro-level (i.e., buyer- and seller-side) strategies, but platform firms also can adjust their macro-level strategy, which has performance implications for both buyers and sellers on those platforms. In particular, as online platform firms mature, they often implement an upmarket repositioning strategy, similar to those that are prevalent in brick-and-mortar channels (Slywotzky et al. 2000). In this transition, the platform seeks to improve the quality of the products available on its site and thereby raise the overall level of reliability of the platform. For example, in an anti-counterfeiting campaign, eBay “banished tens of thousands of sellers from its auction marketplace who did not meet new, elevated standards,” after realizing that the loss of buyers’ trust would cause severe damage to its future revenue growth and potentially provoke costly lawsuits (The New York Times 2007). Because failing to foster trustworthiness creates “negative externalities” and “threaten[s] your core value proposition to your most valuable customers” (Halaburda 2010), it is critical to understand how macro-level upmarket repositioning strategies by a platform affect existing buyer- and seller-side strategies. Thus, a second objective of this research is to understand how a macro-level, upmarket repositioning strategy influences the effects of buyer- and seller-side strategies on all three revenue sources.