Last Updated on September 28, 2018
What is a Two-Sided Marketplace?
A two-sided market is where two agents (usually customers and suppliers) meet through a platform of an intermediary to help benefit both parties.
Uber is a good example of a two-sided marketplace as both drivers and passengers interact with each other. Drivers gain money and other incentives to drive passengers, while passengers have a quick way to reach their destination.
We’ll use this guide to give you some tips on how to build a two-sided marketplace.
Find an Industry Based on Your Expertise
During the ideation stage of creating your marketplace, it’s better to start with an idea that’s related to your field. By creating a business within a familiar industry, you’ll have a better understanding what your customers need and desire.
Focus on the Supply, Not the Demand
Most successful startups follow this model, and for a good reason. When developing your marketplace on the supply side, your consumers don’t have to suffer any additional switching costs. Switching costs occur when the consumers have to pay for certain supply changes:
- Updated Software
- Cancellation Fees (i.e., Cellphone Contracts)
When you target the supply section, you create high-quality products that don’t need to be changed. This makes it easier for the consumer to stick to your brand and continue buying your products in the long term.
After deciding you’ll target the supply sector, you have to ensure that your marketplace is liquid. This means that once a producer creates a product, there has to be demand equal to its value.
For instance, Craigslist is a liquid two-sided marketplace. There’s a high chance that someone listing a service, request, or item will find someone interested in the platform and interact with them. Craigslist provides transaction value (and a lot of it!), making it a liquid market model that should be followed.
One way to obtain market liquidity is to analyze your product/market fit. While your product/market fit won’t happen overnight, working diligently to meet your user’s needs will help create the “fit” needed to make your market liquid. And when it does, you’ll know because your platform will start to grow.
Enjoy Feedback and Optimize Your Marketplace
Lastly, it’s extremely important to listen and learn from your marketplace’s users. Your platform can’t exist without a good network, so the critiques and opinions of your users will help your platform grow.
We recommend that you create a survey to help gain this feedback from your audience. Ask them questions on how to improve your products (Bonus: reward them for doing so), and you’ll have the information needed to fix issues and bring more value.
Overall, you have to put a lot of time and effort to build a two-sided marketplace.
Not only do you need to make a market that’s focused on the supply, but it has to be an interesting product so that the demand (consumer side) is pleased as well. In conclusion, always keep your marketplace updated so that it can adapt to the growing needs of your customers.
Do you have any additional questions about your two-sided marketplace?