Two-Sided Market

A two-sided marketplace or two-sided network occurs when buyers and sellers interact via an intermediary or platform to exchange products or services. The value is given and received by both sets of users. The primary element is the meeting place where both buyers and sellers come to a point and place a bid to sell and buy from each other. 

The two-sided market's main purpose is to ensure quality, cost-effectiveness, and faster delivery of goods and services between the suppliers and the customers. Therefore, it necessitates striking a balance between frictionless and smooth customer experiences, managing supply and demand, and developing technologies that enable faster and more efficient delivery of goods and services from the sellers to the buyers.

• A two-sided marketplace occurs when buyers and sellers interact via an intermediary or platform to exchange products or services. The value is given and received by both sets of users. Examples include Uber, Facebook, and Ebay.com. 
• The increase in the network's customers, users, or service providers increases the system's value. In other words, for any group to benefit, economies of scale are necessary.
• Developments in the two-sided market are producing positive effects. Examples include improvements in communication networks, online marketplace, social media, and credit card payment systems.

A two-sided market is where two parties come at an intermediary platform, such as a stock exchange or intermediary platforms, to obtain the services. The interdependence of the suppliers/sellers/producers and the consumers/buyers are both the kind of heterogeneous user bases that come together and conduct business transactions. This market system is highly dependent on the number of consumers/buyers, and the success of these markets depends on the number of buyers and sellers. 

It differs from traditional or one-sided markets where buyers or sellers are interested in a particular security or commodity and don't have an intermediary involved. Instead, a network effect occurs when a new customer of a good or service makes the goods or services more valuable to other customers. When a network effect exists, a product or service's value generally rises in proportion to the number of others using it. The consumer technology industry is the best example of a two-sided market. These companies create value by enabling the direct relationship between customers through the help of intermediary service platforms such as Uber, Paypal, eBay, Etsy, Facebook, etc.

Strategies adopted in the two-sided market :

• Subsidizing: The subsiding method helps businesses collect revenue from the group of users, i.e., suppliers and buyers, to increase the traffic or aboard the group of users on the platform. It is often assumed that if one end of the market attracts the user base, the other end of the market will increase the profit or the revenue of the business.
• Pricing Strategy: The business adopts the pricing strategy to set minimal or no fees to attract users to the platform and then gradually increase the price to increase the growth or revenue. The pricing is therefore adjusted between the groups in the future, and the margin for each user group differs. 
• Trialability: It helps businesses sell goods to users free of cost for a limited time. Additionally, trialability assures customers of product quality, and research indicates that customers expect to pay more for a product after using it for a while.
• Micro Market: The business strategy under which the business focuses on a group of small people to generate a positive network among a large group of people. For example, Uber initially focused on the people from San Francisco and then started capturing other markets or cities. 
• Marquee Users: These groups generate huge revenue for the company since the customers buy a huge quantity of goods, prefer long-term relationships, and popularize the products and platforms.

Let us look at two-sided market examples to understand the concept better:

Example #1

Uber is the perfect example of a two-sided marketing strategy. Customers need a safe, comfortable, affordable transport service, and drivers need customers. The driver helps customers reach their destination. Uber act as the intermediary between customers and drivers. Uber generates revenue by charging fees from drivers for rides they get through the Uber platform.

Example #2

Google pay is an example of a payment app that follows a two-sided market approach. First, it is an intermediary payment platform that facilitates the smooth transfer of payments from person to person, person to account, etc. It needs enough user base to do transactions and people to sign up for payment options on the app. Many people have started using google pay at kiosks and supermarkets or consider it the prime payment option. In that case, it will generate revenue without charging the customers directly. Rather, it will follow other strategies by charging from the service providers such as telecom operators or through advertisements, etc. 

• A one-sided market strategy is a business strategy under which the market derives value from a single class of the user base. In contrast, the two-sided market strategy is a business strategy under which the market derives value from the two classes of the user base. 
• An initial Public Offer (IPO) subscription is the best example of a one-sided market strategy. In contrast, Razorpay, Uber, and Google are the perfect examples of a two-sided market strategy. 

This article has been a guide to what is Two-Sided Market. We explain its strategies, examples, and comparison with the one-sided market. You may also find some useful articles here -

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