STRATEGY: How to Use Multi-Sided Platforms To Create The Network Effect
Multi-sided platforms have become much more commonplace with the advancement in technology, with more and more businesses starting up businesses online, taking on the role of facilitating opportunities between the two parties they bring together.
A multi-side platform generates more value for its groups of users as it garners more users in each of the groups.
An example would be the Facebook social media platform. With over 2 billion users on its platform, the fast-paced growth for the platform has made it a very valuable channel for online advertisers to reach targeted audiences. The platform brings Advertisers and Social Media Users together to facilitate interaction between the two parties.
FOODORA
Another example would be food delivery services such as Foodora, where they bring together restaurants who want to serve more customers and customers who want the convenience of having lunch / dinner delivered to them.
The more restaurants participating on the food delivery platform, the bigger the draw for customers to download the app - more choice = more attractive.
So you can see how each of these multi-sided platforms create The Network Effect as the platform grows the distinct groups involved in making the platform 'work'. Foodora would not work without restaurants participating OR without customers ordering on the app.
GROUPON
Another well-known example is Groupon - which allows retailers large or small to reach out to a large potential customer base. Groupon brings together these retailers and customers - one party to offer deals and the other to purchase deals together. In order to make the deal viable and profitable for the retailer and the customer, each deal needs to reach a certain threshold - this could be 50 groupons purchased for the deal or 100 groupons purchaesd for the deal.
If Groupon didn't have the volume of purchases coming from its customers, it would not be an attractive marketing effort for retailers to supply such large discounts on their platform.
Building Your Own Multi-Sided Platform
Wondering how you can build your own multi-sided platform? Remember that you are bringing together two groups of people who can benefit from each other. You are creating a platform for these groups to connect. Always go back to this objective - to add value for the groups you bring together. Just like for Foodora, restaurants get greater exposure to customers they wouldn't otherwise reach, and the customers gain a wider selection of food delivery options straight to their home.
How do you add value?