A platform is the definition of a two-sided business model. The principle is to offer a platform where two user groups interact in order to exchange services and goods.
Well-known examples are:
- Amazon Marketplaces
- App store (Apple)
- Uber Eat
The two-sided model brings many benefits but also challenges to the platform. It can also involve providing additional and new services to meet the need of the platform’s target group. Amazon Prime TV is the perfect example of this.
Before you start
- It is essential to check that the value proposition you have created relieves issues on both sides of the model.
- Make sure that the market you address is big enough, as the success of this model is based on the volume and the number of actors.
How to start?
- Launching a two-sided business model means setting up two businesses at the same time and for this reason it can be very challenging. There are different solutions for this:
- Start with the first side of the model by managing the service yourself and then focus on the second side. This is what Amazon did. They started out by selling the products themselves before opening their platform to other sellers. They still sell the most successful items themselves.
- Launch the marketplace on a very small scale and actively recruit buyers yourself.
What are the key success factors?
These are determined by network and include the following:
- Ability to generate the Network Effect. The value of a platform rises with the number of users, mainly on the buyer’s side. Once it is known that you have success on the buyer’s side, recruiting new sellers will be easier.
- Choosing the right network structure is also important. It is more difficult to compete with a company active on a global network than a company on a fragmented network. This is the reason why Airbnb faces less competition than Uber.
How to cope with threats?
Even though the two-sided business model is a strong model, it can still face threats. Here are some examples and a few ways to respond to them:
- Extra facilitation through the transaction process and also afterwards (travel Insurance, transfers to the airport, etc)
- Providing evidence to show that smaller players do benefit from your platform
- Reducing negative externalities of the usage of your platform
- Multihoming :
- Signing exclusivity contracts with the seller
- Providing new services that respond to the new needs of the buyer group