What is a Two-Sided Marketplace?
Two-sided marketplaces are platforms that bring buyers and sellers together to create and exchange value. These businesses and platforms are used so frequently that it’s become a normal part of our lives and have been so successful because there is a strong need to match the supply and demand through both sides of the platform in a more efficient and seamless way.
These businesses marketplace popularity has grown significantly in a short period of time and has little to no signs of slowing down. The sharing economy is projected to grow to $335 billion in 2025 to grow to $335 billion in 2025. Faster than ever, we're shifting to the world of a shared economy.
Examples like Airbnb, Uber, eBay, Masterclass, and EzLicence have changed the way we buy, view, experience or transport.
Despite its relatively low barrier to entry, marketplaces should still be considered with great caution. Focusing on a particular niche is crucial to building a two-sided marketplace. Your business or website should offer unique, specific products and services that are interesting to a clearly defined audience. Market research is key to determine how big your market is, prior to embarking on such a journey.
The two-sided marketplace business model
Both sides of the market can find each other conveniently and exchange value on a trusted platform. Depending on the type of marketplace, the monetisation model can change. Whether it be; clipping the ticket (commission) or yearly subscription. There is no ‘one size fits all’. This is why strategy and discovery early on in the business building of your concept it critical.
Upside for Buyers
Multi-sided marketplaces make it significantly easier, faster, and cheaper for buyers to find what they need. As opposed to relying on search engines like Google which can lead you to a never-ending loop of time-wasting. For example, think of life before Uber came into the picture. You would have to hail a cab and be fortunate enough to be in the right place at the right time. Now, you can order an Uber at the convenience of your location and at a predetermined time.
Two-sided marketplaces make life easier for buyers – it’s now 10x easier, faster and generally cheaper to find what you are looking for.
Uber founders Travis Kalanick and Garret Camp completely disrupted a long-established market with a product that no-one knew they needed. Ordering a ride became as simple as tapping a button, leveraging smart tools which significantly reduced wait times through their clever matching algorithm.
Furthermore, to help build trust in the buyer, Uber drivers’ name, face, and reviews were displayed to buyers. A huge key factor of their success was also showing the fixed price of a ride, prior to making a booking. They solved every unknown that Taxi companies were not doing. Which made it so easier for people to switch from taxis, or even their own vehicles, to Uber.
Upside for Sellers
The nature of a two-sided market means that using the platform has to create value for the other side, the sellers. More often than not, they are the side entrepreneurs should focus on the most. WHY? Because without them, you will find it very difficult to attract any users to the platform. Research has consistently shown by increasing the number of service/product providers of a two sided marketplace, they organically attract the buyers.
Let’s take EzLicence as an example here. If you have a car and a driver instructor licence, you could build your own website for people to book you online. However, compare that to the exposure you get on EzLicence? EzLicence provides the marketplace to connect you with opportunities - particularly because EzLicence has been purpose built to make the driving instructor user experience at the forefront. The ability to create your profile and showcase your driving availability and skills to the world, and then let the platform showcase your profile to the outer marketplace, it’s a low risk, high value return on using a two way marketplace, as opposed to developing a singular website for your own specific business.
Fact of the matter is, driving instructors can also list their capabilities on general classifieds either online or through paper distribution channels. However, EzLicence offers the seller powerful tools to manage their bookings, fees, and profiles. So much so that their service becomes naturally more attractive and desirable.
The ease of managing your own business and operations as a seller through EzLicence has created an incredibly large amount of supply, that keeps on scaling year on year.
Upside for the Entrepreneur
The value of a product, service, or platform grows as more and more people start using it.
The beauty about a stronger network can and should result in user acquisition costs dropping. Let’s be honest… this is what all invested stakeholders in the business love to see. This is typically a point where the app can grow and scale. The networking effect will boost your commercial attraction and social influence.
Two-sided marketplaces create value by simplifying transactions, bringing tremendous potential and value to all stakeholders.
It’s easy to talk about it but the real question is… How do we get there? Well, a growing number of buyers means more demand, the demand typically brings in more supply. More supply means more options, availability, and price comparisons. All of these factors naturally spark consumer and market intrigue, which stems to bringing in new demand. A traditional business could never achieve this amount of demand and even if they could, achieving it at such a pace and scale will be incredibly difficult.
Ways to help this rapid networking effect is putting your brand an business out there through PR channels, increasing brand equity and strong relatable user case studies.
It’s low barrier to entry is a result of not having to stock inventory, this is why they can scale exceptionally well. Airbnb, is one of the worlds’ largest travel companies and do not own any hotels. Uber is one of the worlds’ largest transport companies and do not own any vehicles.
In other words – you could build a global business without needing to invest in any initial inventory. Otherwise known as the sharing economy. So, if you have found a gap in the market, a big enough need, where two stakeholders need each other just as much as each other. Then you could be onto something…
Two Sided Marketplace Case Studies
Connecting Learner Drivers with Driving Instructors: Building a Two-Sided Marketplace - EzLicence
Revitalising Fashion's Digital Presence: Designerex's Journey from Offshore Challenges to Onshore Success
Connecting Anaesthesia Providers and Facilities: Building a True Freelance Marketplace