In the previous blogs, you might notice the word “Two Sided.” But what does “Two Sided Marketplaces” mean?
Amazon, Fiverr, Uber, and Airbnb use the two sided marketplace business model to create a marketplace.
So,
What Is A Two Sided Marketplaces?
An exchange platform for products and services between two different user groups that benefit from a vast network is known as a two sided marketplaces.
Take Airbnb as a two sided marketplace example, an online vacation rental marketplace where property owners and renters use the Airbnb platform to share their rental services.
Some other popular two sided marketplace examples are,
- Amazon: It connects buyers looking for products with sellers offering those products. It provides a platform where consumers can find a wide range of products from various sellers and make purchases. At the same time, it offers sellers a platform to reach a large customer base and manage their online storefronts.
- Fiverr: It connects freelancers offering various services (such as graphic design, writing, and programming) with individuals or businesses seeking those services. Freelancers get a platform to showcase their skills and offer services, while clients can easily find and hire professionals for their projects.
- Uber: It connects passengers in need of transportation with drivers who have vehicles. The platform allows passengers to request rides conveniently, while drivers can earn income by offering rides through the app.
The two sided marketplaces are also known as multi sided marketplaces (MSMs), multi-sided markets, or multi-sided or 2 sided networks.
Companies that operate two sided marketplaces have rapidly gained popularity and are growing exponentially.
The Coresight Research Report says in 2022, the income of these platforms will increase to 40.2 billion U.S. dollars which is twice the income in 2014 is 18.6 billion U.S. dollars.
Why Are Two Sided Marketplaces So Popular?
Simplicity and Convenient
“Simplicity” is one of the main reasons behind the popularity of two sided marketplaces.
Conveniently, it connects the users and the service providers or vendors.
Uber is the best example of a simple and convenient dual sided marketplace. In this, the ultimate need for the user is safe and affordable transport.
Uber makes it possible for the user by providing options to choose the drivers, same for the drivers they can have many customers help them build their business.
Scalability
Two sided marketplaces scale incredibly effectively because they are not required to own their merchandise.
Airbnb is the best example of a dual sided marketplace’s scalability.
It is among the top 100 vacation rental businesses globally without owning a single hotel room.
It seems to sense that you could create a multinational company without having to make an initial inventory investment.
In reality, there are several instances of successful marketplaces found through bootstrapping.
Marketplace Software
Like it was at the beginning of the sector, two sided marketplace software is no longer an entry barrier.
With its intricate transaction processes and two sided capabilities, building the platform itself used to take months and a considerable budget.
Today, there are many alternative methods for developing a marketplace.
No matter the market concept, sector, or size of the firm, employing an online marketplace platform like QoreUps to create a multi-sided platform has been a practical alternative recently.
The time and money needed to start a B2B marketplace have dropped significantly because of the development of an online B2B marketplace with a SaaS platform.
Two Sided Marketplace Progress
The network effect is a strong dynamic that may be created by 2 sided markets and can hasten the expansion of an organization.
When these forces are in motion, the platform’s users, vendors, and B2B marketplace entrepreneurs (sometimes known as consumers and providers, the demand and supply, respectively) all benefit.
After that, we’ll examine the advantages of the business model and the challenges it presents.
Two Sided Marketplaces vs One Sided Marketplaces
A one-sided marketplace draws all its value from a single set of customers, but a two sided marketplace derives all its value from various customers.
For instance, ficedollarteeshirts.com is a one-sided online marketplace platform where a single seller sells T-shirts to the customer.
Amazon is a two sided marketplace where multiple users sell multiple products to customers.
There is a vast difference between these two business models.
A one-sided marketplace does not have a network effect. But a two sided one takes advantage of the network effect.
It becomes difficult for the competitors to beat the two sided platform business model with a strong network effect, even though their product is better.
Also, these two marketplaces differ in the flow of the revenue model.
The revenue flow of the two sided marketplace is from both the user and vendor.
But in the one-sided marketplace, the revenue flow is from one side to another.
Advantages Of Two Sided Marketplaces
All three participants the customer, the provider, and the platform, benefit highly from the two sided marketplace business model.
Advantages For Users On The Two Sided Marketplace
Multiple Options
The two way marketplace platform gives purchasers a wide range of options. Typically, a typical marketplace would not offer such choices.
Quick and hassle-free
For the user, using a 2 sided marketplace platform is typically effortless, uncomplicated, and saves time.
Quality Products
Product excellence A lot of rivalries exist among the platform’s providers. They are motivated by this rivalry to maintain high product standards and lower prices.
Advantages For Vendors On The Two Sided Marketplace
More Need
Compared to what they would find on their own, marketplaces increase demand for vendors.
Growth Possibilities
The platform provides the providers with access to a sizable client base. As a result, the provider has a high potential for developing his brand.
Time-Saving
Instead of the vendor, a consumer chooses Amazon because he trusts the marketplace. The vendor might use the time he saves to establish their reputation.
Advantages For Two Sided Marketplace Companies
Low Cost
The marketplace brand has no items of its own. It just links the two parties together. Compared to a one-sided marketplace, it avoids spending a lot of money.
Network Effect
The Network Effect benefits the 2 way marketplace with tremendous growth.
The platform may expand and automatically draw in new users thanks to it.
Network effects can enhance greatly by cross-side virality.
The platform acquires a new client at the risk of losing a current one, but it also loses a present provider.
The latter attracts new consumers, new providers, and so on.
How To Build A Two Sided Marketplace?
Building a two sided marketplace involves several steps:
Conduct Market Research
Know the demands and problems of your target audience.
Analyze competitors to identify gaps and differentiation opportunities.
Tailor your platform to meet user demands and provide unique value.
Define Your Value Proposition
Give a thorough explanation of what makes your marketplace special to your users.
Whether it’s a better user experience, lower fees, or a niche focus, make sure your value proposition resonates with both buyers and sellers.
Choose The Right Business Model
Decide on a revenue model such as transaction fees, subscriptions, or listing fees.
Evaluate each option based on long-term goals and scalability, keeping in mind that your model may evolve over time.
Develop Your Marketplace Platform
Build a minimum viable platform (MVP) that addresses core user needs.
Pay attention to key elements such as payment methods, product listings, search filters, and user registration.
Make sure the MVP platform is scalable, secure, and easy to use.
Launch, Market, and Iterate
Launch your platform with a comprehensive marketing strategy using social media, SEO, and promotions to attract users.
Gather feedback, continuously improve the user experience, and scale the platform based on market demand and growth opportunities.
Challenges In The Two Sided Marketplaces
Every business faces a challenge.
Though a dual sided marketplace has an enormous advantage, it also has some challenges.
Your company can grow significantly with a two sided marketplace business model.
However, finding the appropriate 2 way marketplace tactics which help your firm succeed.
Based on this model, one cannot just create a company overnight. Building supplier and customer communities and gaining traction takes time.
However, as soon as the market grows and things start to operate, it is hard to dethrone it from its position due to the robust networks at work.
Even though this company model fosters connections between various customer groups, it frequently runs into problems that limit its development.
The Chicken-And-Egg Problem
The chicken and egg problem is one of the most frequent difficulties a brand managing a two sided marketplace companies encounters.
The network effect is the cause of this issue.
Since suppliers will only utilize the platform when there is a demand for their goods and vice versa, it requires determining which side of the market to target first.
Ensuring Quality Standards
A 2 way marketplace must ensure that the offering’s quality meets the requirements it promises to the parties in its capacity as an intermediary.
Platform Leakage
There is a good chance that after using a particular marketplace platform for their requirements, consumers and providers would set up their own networks to avoid paying the middleman platform.
In order to keep them, the market must offer ongoing benefits to both parties.
Know more about the prevention of two sided marketplace leakage – Read More
Building Trust And Improving Customer Experience
Two sided marketplaces bring together two groups of customers who meet one another demands.
Only when these two groups of users have confidence in the platform and one another will they use it.
Only until customers feel confident that an Uber is both secure for them and worth their money will they book one.
Therefore, the marketplace needs to be trustworthy.
Additionally, the two sided marketplace business owner must provide a positive user experience for both user groups.
Two Sided Marketplace Strategy
To develop a successful strategy for a two-sided marketplace, focus on the following:
Solve the Chicken and Egg Problem
Attract one side first (users or providers) with targeted incentives, exclusive promotions, and strategic partnerships.
Create initial activity and engagement, ensuring the other side is drawn in by a growing, dynamic platform.
Building momentum early on is crucial for the long-term success of the marketplace, establishing credibility and trust.
Deliver Exceptional User Experience
Ensure an intuitive, user-friendly interface, seamless transactions, and mobile optimization for both users and providers.
A smooth onboarding process, easy navigation, and efficient communication tools will enhance user satisfaction.
By reducing friction points and simplifying the user journey, you’ll encourage repeat visits, foster brand loyalty, and boost overall platform engagement.
Focus on Liquidity
Balance supply and demand by using advanced algorithms to efficiently match users and providers, ensuring timely and relevant transactions.
Offer dynamic pricing, demand forecasting, and automated recommendations to ensure both sides find what they need quickly.
By maintaining liquidity, you create an environment where users and providers can interact effortlessly, driving continuous platform activity.
Build Trust and Safety
Implement secure payment systems, transparent ratings/reviews, and robust customer support to ensure a safe and reliable marketplace.
Regularly monitor transactions for fraud prevention, and ensure that both parties have a way to report issues or disputes.
Prioritizing trust, transparency, and safety will foster long-term relationships and enhance user confidence in using the platform.
Leverage Network Effects
Encourage cross-side interactions, referrals, and social sharing to fuel exponential growth and expand your user and provider base.
Offer referral incentives and promote word-of-mouth marketing to create viral growth.
As the network grows, the value of the platform increases for both sides, attracting more users, and more providers, and ultimately leading to a larger and more sustainable business.
End Note
Building and maintaining a two sided marketplace can be challenging but also highly rewarding.
It involves creating a platform that facilitates efficient interactions between two distinct groups while providing value to both.
The key to success lies in overcoming the chicken and egg problem, ensuring high-quality standards, and building trust among users.
Once the platform gains traction and leverages the network effect, it can grow exponentially.
By focusing on simplicity, scalability, and a positive user experience, two-sided marketplaces can thrive in today’s digital economy.
The growth of platforms like Airbnb, Uber, and Fiverr proves the potential of this business model, and with the right strategies in place, any two-sided marketplace can succeed.
