How To Monetize a Two-Sided Marketplace

If you want to get paid, you need to play matchmaker

image by benzoix

The lure of a two-sided marketplace is in its simplicity. All you have to do is let customers in one door and let vendors in another, then get paid when they transact.

If it were only that simple, all two-sided marketplaces would be making fistfuls of money.

It’s never been easier to bring a two-sided marketplace online. But by now we’ve learned that just opening doors and recruiting customers and vendors usually results in a poor experience on both sides.

In other words, your marketplace can’t just be a directory of providers and a guessing game for customers. Your marketplace needs to make fulfilling customer needs seem like magic.

As I’ve honed my approach to digital marketplaces, both on my own and for major companies, I’ve developed a four-stage process for matching customers with vendors, and making those matches more accurate, more efficient, and more profitable for the marketplace platform.

This process will not only monetize your platform more quickly, it’ll make both your customers and vendors more successful, which means they’ll come back and bring others with them.

The basic ingredients of matchmaking

To get to a functional starting point for the requirements for every successful two-sided marketplace (2SM), I’m going to recite the history of 2SMs in two short paragraphs.

Remember Yellow Pages? Yeah, these were basically the second half of every phone book, and phone books were a way to find contact information for providers of products and services in a particular location. The early days of the Internet brought the Yellow Pages online, then as businesses started to build their own web presences, search engines categorized those businesses.

Those search engines spun out recommendation engines, a la Netflix. Then as the Internet started invading our privacy, those recommendations got more accurate. As eCommerce went mainstream, digital marketplaces offered value by removing most of the friction from just about any transaction. Then once almost every person on the planet became a shut-in with a computer in…