Salesforce Compensation with Network Effects
“Salesforce Compensation under Network Effects”, Workshop on Information Systems Economics (WISE), Dallas, TX, 2015
This paper examines the management problem of “selling” platforms, i.e., designing appropriate salesforce management and incentives schemes to obtain participation by paying customers. The paper shows that network effects increase not only the mean, but also the variance of the performance metrics used to compensate sales agents. This is true for both one-sided network goods (such as communication tools and data interchange software) and two-sided markets (such as OpenTable, which links restaurants and diners), but the intensity of network effects influences the optimal commission rate differently in the two cases. Additionally, it might be useful for managers of two-sided market platforms to compensate sales agents, hired to mobilize the network on one side, based on growth rates on the other side as well.