Sunday December 04, 2022

The key to success: Two-Sided Marketplace

Platform businesses with high success rates have the potential to grow quickly. This is due to double-sided network effects, cross-side virality, and cross-side networking. These add value to all parties: the customers, providers, and the platform owner.
What is a 2-sided marketplace?
A two-sided marketplace allows customers and providers to exchange economic value. They connect and transact, and benefit from each other’s large network.
This business model is also known as “two-sided networks”, or “two-sided platforms”, or “platform business model”.

Its riders and drivers.

Its hosts and its guests.

Its sellers and buyers.

A two-sided marketplace serves as an intermediary economic platform that connects two parties. This model of business platform can be found in many industries such as these well-known examples of two-sided markets:
Why are two-sided marketplaces so successful
Two-sided marketplaces are extremely successful today because of the increasing need for an intermediary that matches the needs of both the supply and the demand sides.

Another important fact is that two-sided platforms scale quickly because they don’t need to have anything to start up. They only need to provide the IT infrastructure for both sides.
You don’t need any production, property or services to provide.
Uber, for example, matches riders with nearby drivers but doesn’t own any cars. Airbnb, on the other hand, connects guests with hosts but doesn’t own a single apartment or hotel room.
This is how a two-sided marketplace could become a profitable business. But how do we start one? Keep reading to learn more.

Network effects
Potential for exponential growth is possible through network effects. The value of a product or service increases as more people use it.
The larger the market is, the more value it creates for all involved.

Cross-side virality
Cross-side virality can increase network effects. Each customer the platform acquires brings in a new provider who in turn brings in new customers who in turn become providers. This creates a continuous cycle of network effects.
If two-sided marketplaces succeed, they may move to a multi-sided market or platform. This allows them to launch additional business models and enter new markets.
In fact, Airbnb launched “Experiences” while Amazon launched AWS (Amazon Web Services).

How do you build a two-sided market?

1. Narrow your niche

First, choose your niche. You will have a better understanding of users and providers if you choose a niche in which you are an expert.
However, you should research the niche thoroughly if you choose to go after it. If your business idea doesn’t have a market, you will be very fortunate to have an open space to build a two-way marketplace and a community of users.
You can also choose to go for already established and tested marketplaces in your area so you don’t have so many risks.
Keep this in mind: The narrower your niche is, the more trustable you will be. This will make it easier to reach both sides.

2. Identify the value exchange

To create a successful two-sided market, it is crucial to identify exactly the transactions that customers and providers must complete to exchange value.
In Uber’s example, the transaction is when Uber drivers offer rides to ride-seekers and Uber drivers submit requests for rides. In Airbnb’s case homeowners rent out their homes and Airbnb guests book stays in different locations.
Before you begin the development process, you must make sure you have researched the demand and supply sides.

3. Create a MVP

First, you must build and launch a MVP (Minimum Valuable Product). This is a first version that has all the necessary functionality. It allows you to maximize the benefits of each side and reduce the inherent challenges. This should not require you to spend a lot of time or money.
This will allow you to quickly test your idea with real users. Listen to your users and analyse their feedback to improve.
You will also need a website that is attractive to new visitors. You will also need an admin panel to manage your business (stakeholders and financial reports, etc. ).

4. Find the solution to the chicken-or egg problem

The chicken-or-egg problem in an early-stage two-way marketplace becomes the downside to the network effects.
It is difficult to determine which end user you should acquire first. Your marketplace is dead. There are no products or services to buy or sell, and there is nothing to book or list.
The general recommendation is to first approach the demand side and then move on to the demand side. Customers who are first to visit the service seek out variety and offers. This encourages them to return later and recommend it to others.
Uber, for example, asked a group taxi drivers to sign up to the app. Then they motivated them with promises of more rides. The platform was then opened to riders.
Once you have received this initial push, it is possible to start promoting your marketplace on other websites and social media platforms.

5. Reach liquidity

After solving the chicken and egg problem, you need to ensure that your platform has the liquidity it needs by meeting the expectations both of customers and providers.
This means that you need to make sure that your customers can find the exact product/service they want on your platform.

Your platform will grow exponentially once you have enough customers and providers that you trust.
To optimize, you must listen to both users and the platform. This is the key to any business’s growth.

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