Multi-sided markets are increasingly being leveraged to create platforms with positive network externalities. To achieve these potent outcomes, a matchmaker must serve in a manner that organizes each side of the marketplace. Typically one side of the market must be fostered to critical mass, and then the other side(s) of the market have sufficient incentives to participate.
Background
The concepts fundamental to marketplaces date back centuries. Examples of business models with two-sided matching include pairing couples, newspaper publishers, stock exchanges, credit card & payment networks, shopping malls, and job boards. In fact, many business models rely on matching. Each type of participant in the marketplace constitutes a "side". The marketplace itself is where the process of matching participants on each side is organized and executed. By incorporating behavioral economics, these marketplaces become exponentially valuable to each side.
Critical Mass
The key difference-maker in a successful multi-sided market is achieving critical mass on each side of the network. Buyers will only pay attention to a marketplace that has enough supply (aka. enough sellers). Similarly, sellers are only going to participate in markets with sufficiently high demand.
The core concepts are summarized nicely in this video.
Recommended Reading
There are some great resources on this topic. The book called Matchmakers: The New Economics of Multisided Platforms, by authors David S. Evans and Richard Schmalensee, elevates the conversation about how network effects have helped drive exponential growth for many organizations including Uber, Alibaba, eBay, Airbnb, OpenTable... even Amazon.
There are also some excellent talks on the topic of matchmaking and multi-sided markets:
- Readara
- Chicago Council on Global Affairs
- UC Berkley Haas School of Business
- Stanford Graduate School of Business
- a16z
Next Steps
Volley Solutions believes in the power of game theory and multi-sided markets to connect organizations with the most powerful decision-making capabilities.
Does your organization already participate in a marketplace?
In what way are you working as a matchmaker?
We would love to understand how the Volley technology platform can help. Let's talk.