The platform’s business model is to take a percentage of the transacted value for connecting producers and consumers. The platform does not own the supply chain of value, but rather controls the network of third-party producers of value and the consumers coming to the platform to consume that value. Two-sided marketplaces can be difficult to successfully execute, but many of today’s most profitable start-ups are two-sided marketplaces. One of the most popular two-sided marketplaces is Uber.
Uber’s marketplace connects drivers with riders. Uber is one of the largest transportation companies in the world, but it does not own have any cars or full-time drivers on its balance sheet. Other notable two-sided marketplaces include Airbnb, Etsy, Craigslist, and Handy. Since two-sided marketplaces are the product of their network, they are difficult to establish and maintain once created.
During the ideation phase of starting a marketplace business, it is best to go into a field in which you have expertise in. He was able to identify first-hand a problem in the industry and create a platform to solve the problem. One of the major keys to creating a successful two-sided marketplace is nailing the core transaction. The core transaction is the set of actions consumers and producers must complete to exchange value.
Companies must plan what transaction will occur on their platform to properly scale their marketplace and target the right type of users for their platform. For Uber’s core transaction, drivers make themselves available for rides and ride-seekers submit requests for rides. On eBay, producers list their products on the site for sale and consumers purchase those items. In every transaction, one party always makes the initial connection that sparks the transaction and begins the process of exchange.
Once consumers find what they are looking for, they consume the value being created by the other party. Lastly, consumers create value after consumption through some form of compensation, usually monetary, thus concluding the core transaction. The chicken-and-egg problem is the sink-or-swim moment for most two-sided marketplaces. Initially, a platform does not generate enough value to attract new users. Without one party using the platform, there is no incentive for the other party to join or stay. Read more specifics about their execution in the link above to learn how to attract a critical mass of producers and consumers to the platform. Once you solve the chicken-and-egg problem for your two-sided marketplace, you must ensure your platform is liquid. Craigslist is an example of a very liquid two-sided marketplace. This is because there is an extremely high probability that someone listing an item, service or request on the platform will relate to an interested party, no matter the location or time. Craigslist enables a lot of transaction of value. One way to guarantee two-sided marketplace liquidity is analysing your platform’s product/market fit. And when it comes, you will know it as your platform will grow exponentially.
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