This business model is based on a physical or virtual platform whose main purpose is to allow the direct connection of two or more groups of people who all have an advantage in interacting with each other through the platform. The platform becomes increasingly valuable to users as the number of users increases.
The possible sources of revenue for multi-sided platforms vary. Indeed, a platform can decide to make access free and charge advertisers by providing them with an audience. The platform can also charge for its service through subscriptions or a commission on every transaction.
Advantages & Challenges
The main advantage of this business model is that the network effect reduces the marketing costs of customer acquisition. Due to the interdependence between the different parties, an increase in the number of users on one side of the platform reinforces the attractiveness of the platform on the other side. In addition, a multi-sided platform has a low marginal cost since the maintenance costs of a platform are mostly fixed (servers, developers, marketing, etc.). For users on both sides of the platform, the time and costs of searching for the right product/customer are reduced as these are both easily available through the platform.
But the network effect, which is the main driving force behind the success of this model, also poses a big challenge in the start-up phase. The initial acquisition costs can be significant because of the need to create an initial user base sufficient to bring the network effect into play between the different stakeholders.
Evolution of the business model & maturity
The first traces of multi-sided platforms as we know them today date back to the 1950s with the creation of Diner Club payment cards to simplify payments between customers and restaurateurs (such as the American Express).
Digitalization has had a significant impact on the business model as it has enabled multi-sided platforms to reach a growing number of markets and connect people who no longer need to be in close proximity to make transactions.
In recent years, the model is also impacted by the sustainable revolution because it can be used as a tool to promote the sharing economy. Another sustainable example is platforms that connect users who have had a problem with their products with people who are able to repair them.
Airbnb, one of the main companies employing this business model, had a turnover of more than 3 billion dollars in 2018 and reached a stock market valuation of 31 billion dollars a year later. Today, the application has more than 3 million households available on the platform and more than 150 million users.
Products & services adapted to the business model
Thanks to the digital revolution, more and more sectors are becoming adapted to the multi-sided business model. Indeed, from the transport sector to real estate and services, everything can now be offered on multi-sided platforms.
On NextBusinessModels our competitive intelligence platform, you can get more information on this business model and learn about inspiring players that have already deployed it.
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