One-Sided and Two-Sided Platforms

A two-sided platform is driven by network effects: a boom on one side lifts the number of participants on the other. Both halves of the equation have to show up for the platform to work at all. Uber is the obvious example, since its value to drivers rises with the number of riders.

The hard part is knowing which side to build first. To create demand and attract customers you need service providers. To attract service providers you need customers.

So the decision is really a monetisation decision. Which user group gets the freemium offer, and which one do you charge. Create demand on one side, and you position yourself to attract the paying customers on the other, which is the group you always intended to monetise. From there the value grows incrementally: more customers attract more providers, and more providers attract more customers.

A one-sided platform has a single group of participants and extracts its value from them. A pure B2C e-commerce business is the clearest case: the owner, usually a retailer, spends money to acquire customers and monetises them through product sales. The economics are a direct function of the net return from each customer, so the strategy is acquisition and retention around a defined group of users and their spending profiles.

A one-sided platform lives on monetising loyalty rather than on network effects between users. That distinction decides almost everything else about how you build it.

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