Why Two-Sided Marketplaces Self-Destruct
A two-sided marketplace never achieves the same level of customer loyalty that a direct marketplace does
If you’ve ever used Uber or AirBNB, you’ve interacted with a two-sided marketplace. A two-sided marketplace is a technology-enabled platform that brings together two distinct groups of users to provide mutual benefit. One group — the customers — purchases from the other group — the providers — while the platform handles the pairing, the engagement, and the transaction itself.
These days, it seems like anyone can stitch together a simple two-sided marketplace. All it takes is using readily-available technology to gather a big group of customers on one side and a curated list of providers on the other. The pioneers are already there: Uber and Lyft for transportation, AirBnB for lodging, Etsy for handcrafted products, and even the beleaguered dog-walking startup Wag.
The lure of building a two-sided marketplace is that it seems like a perpetual motion machine. The bigger each side gets, the more attractive it is to the other side, and vice versa. Then all you have to do is sit back, let them transact, take a small piece, and get rich.
But the vast majority of two-sided marketplaces fail.
