\u201cHardware is hard\u201d is the mantra of Silicon Valley \u2013 I have heard it firsthand more than once in discussions along Sand Hill Road. The phrase goes hand-in-hand with Marc Andreessen\u2019s \u201cSoftware is eating the world.\u201d Both statements are profoundly true and, in my experience; create the foundational doctrine for most venture capital today whether in the Valley or not. But these two statements, taken together or separately, do not define the opportunity in technology today \u2014 they define conditions of opportunity.\u00a0 And in the Internet of Things (IoT) hardware actually provides the key to that business-model-of-choice that Andreessen has so successfully driven with his investments in Facebook, Pinterest, Airbnb and LinkedIn \u2014 the two-sided marketplace.\nSangeet Paul Choudary is a modern day evangelist of two-sided markets with his Platform Economy series. Choudary\u2019s teachings and thought leadership on the subject are some of the best.\u00a0But the model is not an artifact of the Internet. Economists define the two-sided market place as follows:\nTwo-sided markets, also called two-sided networks, are economic platforms having two distinct user groups that provide each other with network benefits.\nExamples of well-known companies employing two-sided markets include such organizations as American Express (credit cards), eBay (marketplace), Taobao (marketplace in China), Facebook (social medium), Mall of America (shopping mall), Match.com (dating platform), Monster.com (recruitment platform), Sony (game consoles), Google (search engine) and others.\u00a0\u2014Wikipedia\nChoudary and\u00a0Bonchek first referred to their two side marketplace as a \u201cplatform model\u201d which unfortunately, as Choudary recently addressed, confuses the subject in the IoT because of all the cloud platform descriptions. Their analysis focused on three \u201ctransformative technologies: cloud, social and mobile\u201d that are consistent with Andreessen\u2019s idea of software eating the world.\u00a0Choudary\u2019s template and recipe for the two-side market is clear and clean. I recommend it for anyone considering taking on the two-sided market way of thinking.\u00a0\u00a0\n\nHowever, if one considers the economists\u2019 definition above and this template, one can see that city square markets were early versions of two sided markets. City officials created a destination for both vendors and consumers alike and monetized through simple \u201cbooth fees.\u201d Indeed, the Mall of America is sited as a modern day bricks-and-mortar version of the concept. But these models do not scale the way modern investors demand. Modern investors are attracted to the likes of Facebook, LinkedIn and YouTube because these Internet-based two-sided markets are global in scope and immediate in their financial execution through modern digital banking technology.\u00a0\nIoT startups and transforming manufacturers alike commonly claim to be building \u201cnew business platforms.\u201d The structure is as well-known as the expectations of creating a unicorn. But the most often cited examples are Internet companies as opposed to IoT companies \u2014 the data that creates the platform comes from the users themselves \u2013 their personal data and activity data. The role of hardware in these marketplaces is either computing or commerce, e.g. eBay. However, there are examples that better inform those pursuing two-sided markets in the IoT.\nUnique hardware technology\nSony created the world\u2019s most successful gaming marketplace, PlayStation, with hardware. Playstation sits at the center of Sony\u2019s Gaming group and generated over $13 billion of revenue for Sony in 2015.\u00a0What is less well known is that the PlayStation story began with technology, more specifically hardware technology. Sony wooed critical gaming software vendors from the gaming titans at the time, Nintendo and Sega, with breakthrough 3D graphics generation supported by more open content distribution capabilities via CD ROM and DVD technology \u2014 also hardware. Sony PlayStation demonstrates how superior hardware technology can lead the creation of a two-sided marketplace for digital content and experience. \u00a0\nSuperior hardware experience\nSteve Jobs was perhaps the preeminent creator of two-sided marketplaces using hardware. First he and Apple used superior user experience in the form of hardware, the iPod, combined with a new customer experience model, iTunes, to disrupt the entire music industry and create a massive two-sided marketplace for artists and listeners.\u00a0 Then he repeated the process with the iPhone, a completely new hardware experience for users combined with an application marketplace that revolutionized the mobile phone world by creating a curated, global market place for app developers and every phone consumer. Today the App Store generates over $20 billion\u00a0in revenue as a marketplace netting over $6 billion for Apple.\u00a0 But this amount actually pales in comparison to the over $231 billion Apple generated with iPhone hardware during the same period. So not only can hardware be the key to creating a marketplace, in this case through great user experience, but Apple also showed that the hardware can also be the mainstream of the company success.\nHardware ecosystem that drives adoption\nI recently came across a third method of leveraging hardware to create a two-sided marketplace while researching a post on geolocation and this one that is dead center in the IoT dialogue \u2014 creating a hardware ecosystem that captures data in a way that brings developers and customers together. One company practicing this method is Geotab. Geotab has created its ecosystem beginning with a hardware standard. While so many IoT manufacturers complain that the lack of standards are preventing adoption and thus success, Geotab has leveraged an existing hardware standard to facilitate new IoT value. The Geotab Go is an aftermarket device that captures data from vehicles according to the OBD-II standard. Since 1996 all automobiles and light trucks have had an OBD II port that today provides data regarding everything from the engine performance to vehicle diagnostics to proprietary systems data.\nOriginally the OBD data was used by automotive manufacturers, mechanics, and the occasional emissions regulator. The standard for the hardware interface and data was created by manufacturers so it served their needs for compliance and maintenance.\u00a0 But over the past two decades additional communications and sensors have been added to devices that leverage the OBD port to create new applications that range from usage-based insurance to fleet management to watchful parenting of teenage drivers.\u00a0 The key to all of these new applications has been the blending of the OBD data standard\u00a0with new streams and new analysis that enable specific applications for new customers.\nGeotab created an easy to install OBD-II device augmented with GPS, I\/O, and cellular connectivity for fleet management. The I\/O port provides the flexibility to connect to additional hardware devices and sensors that generate other types of data from sensors and vehicle accessories. I spoke with Neil Cawes, CEO of Geotab, about their hardware design.\nWhat we've seen in the Geotab system is that this is not just about telematics and tracking a vehicle anymore. This is about a data gathering platform.\u00a0 It's an IoT platform for getting data from all sorts of different systems that might be somewhat related to a vehicle.\nThis is where Geotab changed the business model. In a traditional business model each new application from these different \u201cdata gathering\u201d systems would be monolithic and integrated with the hardware. But Geotab has created a cloud resource where the data is available to an app marketplace where Geotab or any third party can place new applications for that data \u2014 new applications that customers want. The data brings developers and customers to Geotab Marketplace \u2014 a two-sided marketplace \u2014 and has made Geotab the fast growing fleet management company today. Cawes again:\nIn order to have a really strong marketplace and ecosystem, you need to be very, very open. As a company, we have to focus on what does it mean to be open. Our APIs are open. Anything that we can do in the system, our partners can do in the system. \nWe document it really, really well. We get lots of samples and source code. Even our hardware's open. We have so many partners that plug into our hardware. We give them the schematics. We give them all the protocols. They can add all the connectivity onto the hardware. We have this kind of expansion system, which is really cool in our hardware, but they can go and add on whatever extra products that they want. That's what makes the ecosystem so powerful.\nGeotab has created a two-sided IoT marketplace with hardware, hardware built from a standard but made flexible to bring in more kinds more data from other hardware. The standard facilitates widespread adoption. But the approach of open data and hardware specifications allows ecosystem developers to bring new applications to the marketplace thereby attracting new customers who in turn buy the hardware to get to the application thereby generating more data. \u00a0\nHardware generates the data\nData is the key to an Internet two-side market, lots of data, and in the IoT data starts with hardware. Companies today tout their \u201cIoT business platforms\u201d and most monetize on data. The challenge for all is getting that data. Only through hardware does data flow in the IoT so follow the leaders and use these methods to create the two-sided market:\n\nDevelop unique hardware technology that generates valuable data and enables software to create valuable information \u2013 hardware that attracts application developers.\nBuild hardware that creates a superior customer experience and thus higher adoption that creates more user data that in turn attracts application developers.\nCreate a hardware ecosystem that leverages and extends adoption through data that supports new applications for both the hardware and the data.\n\n\u201cHardware is hard,\u201d but \u201chard work pays off.\u201d This proved true for Sony and Apple and is certainly proving true for Geotab now in the IoT. Two-sided markets are the perpetual motion machines of the business world. The laws of physics deny such things in the physical world. Hardware can create them in the Internet of Things world.