Every business seeks to earn revenue by delivering value to its customers. Initially, this would happen through channels. The producer or manufacturer had to create a product or service and push it down to the consumers through various channels. The process involved multiple intermediaries.
With time, things are changing. New business models are surfacing up and transforming how buyers and sellers connect. The multi-sided platform business model is one of these business models. But what does it entail? Keep reading to learn how this model works and its advantages and disadvantages.
What is the Multi-sided Platform Business Model?
Also known as the “two-sided” model, a multi-sided platform is a business model that involves a platform connecting a mass of sellers and buyers. The platform works as a marketplace where customers and sellers meet and conduct their transactions. This aspect replaces the traditional supply channels and middlemen.
The platforms work as matchmakers where they play the intermediation role. As such, these platforms do not own a product or generate content but acts as a bridge between a supplier and the consumer.
How Does Multi-Sided Platform Business Model Work?
When you hear about the multi-sided platform business model, the next question is how does it work? From the explanation above, you understand that the platform is an intermediary that connects producers and consumers. In other words, it is where supply connects with demand. This model has three parts, namely the supply, the demand, and the multi-sided platform.
The supply side consists of producers, content generators, and sellers. This group is looking for customers to buy or consume their content, product, or services. For instance, the suppliers can be landlords, accommodation owners, and drivers. Their role is to offer a product or service that customers need. But for them to save on the supply cost, they subscribe to the platform enabling them to reach out to the customers.
The demand side is the next part of this model. This side consists of consumers or buyers. The group needs a particular product or service, but they do not know who is offering it. So, they subscribe to the online platform that acts as the marketplace for the product or service. A good example of people occupying this category are passengers, renters, buyers, and consumers. The group influences the demand for a certain product in the market.
A multi-sided platform is the last bit of this model. The platform acts as the connector between the demand and supply sides. It acts as an intermediary and facilitates the transaction between the parties. However, for the platform to be useful, it must be valuable and relevant. The users must find the platform useful and offering value for their money.
Also, it must attract more users and suppliers. The platform has to manage the interactions and ensure there are cross-sides and same-side network effects that offer value and inspire growth. Without this ability, the platforms become irrelevant and invaluable.
Examples of Multi-Sided Platform Model
With the desire to reduce supply costs, many businesses are searching for ways to eliminate multiple intermediaries. This aspect is instigating the rise of multi-sided platforms in every industry. for this reason, there are numerous examples of businesses using this model in their operations.
Uber is the first example. This company provides a multi-sided platform that connects drivers and passengers. The company does not own cars or pull of passengers. Its role is to facilitate the passengers’ movement by connecting them with drivers near their area. This company transformed the taxi industry.
Airbnb is the next company using the multi-sided platform business model. The company connects renters with house owners. This aspect solves the renters’ challenges of finding accommodation when on a business tour or holiday. As well, it enables owners to get clients for their rooms.
Other businesses using this model include eBay, PayPal, and social media platforms.
Pros and Cons of the Multi-Sided Platform Model
The multi-sided platform business model is a revolution that will shape future businesses. Any business that is seeking to remain competitive should consider subscribing to this model. With the internet becoming a basic need, customers will rely on online marketplaces when they need a particular product or service. Despite this, the model is not immune. It comes with its share of merits and demerits. Here are some of them:
Pros
Reduce supply cost and high return on investment
The model works as a connection between buyers and sellers directly. It does not have room for intermediaries. Elimination of the middlemen means that suppliers will save on the distribution costs. As many businesses desire to retain more profit, they will consider using this platform, leading to a high return on investment to the multi-sided platform owner.
Enhanced growth due to network effect
The role of multi-sided platforms is matchmaking. It bridges supply and demand sides. When each side grows, it influences the other and inspires the platform’s growth. In other words, multi-sided businesses experience growth because of same-side and cross-side network effects.
No need to create a product
As a multi-sided platform owner, your role is intermediation. You do not create content or products to offer to the market. Instead, you create a platform that connects buyers and sellers. This aspect means that you do not need to try different business ideas in developing products. All you need is to make your platform valuable and relevant to attract users.
Cons
Need vast investment
For you to benefit from the multi-sided platform model, you need considerable investment. You must take time to develop the platform and its value proposition. This aspect will require investment in time, branding, and development. Hence, it might not be easy to use it if you lack enough resources.
Conclusion
In a word, the multi-sided platform business model is the new dawn in the modern market. The aspect is enhancing how sellers connect with their target buyers. Also, it is saving time and money for suppliers to find the right buyers. However, for a business to use this model, it has to invest in making it useful and relevant to the users. Without this aspect, it will be hard to thrive.
