The multi-sided platform business model has become popular among top companies, especially technology-related ones. Contrary to common belief, though, the business model isn’t a new business.
The multi-sided platform business model has existed for a long time, dating back to several centuries. However, it has gained more prominence than ever due to the internet.
The multi-sided platform business model is beneficial for all companies, whether they are startups, recently incorporated, or established ones. It has become the choice for most businesses worldwide because it is highly successful. Some companies base their operations on the business model, while others adopt it into their business plan.
The multi-sided business model consists of three or more parties involved in a transaction. The first party is a company that provides a platform for the other two parties. The second party is a customer who uses its platform and directly interacts with it.
Lastly, the third party is a consumer that interacts with the customer through the company’s platform. In some other variations, the business model may involve even more parties. However, at its simplest, it needs the interaction of those three parties.
How Does the Multi-sided Platform Business Model Work 2022?
Companies operating under this business model provide a product or service that connects two or more participants groups. The multi-sided platform company’s role in this model is that of an intermediary. The company provides value by facilitating the connection between the other two participants. Often, the company earns from one side.
Most famously, all social media networks use the multi-sided platform business, connecting people from various fields of life together. The social media network only plays an intermediary role, while the participants can interact.
Since these companies’ primary source of income is through their platform, they focus on providing the best platform to interact.
The multi-sided platform business model is a modified version of the Consumer-to-Consumer (C2C) business model. Therefore, it has all its characteristics and comes with all its drawbacks. However, the source of income for the company may differ from those using the C2C business model.
The primary source of income for the company is through its customers. However, the customer can further earn from the consumer in the process. For example, a platform may charge its customers to market its products or service to their consumers.
What are the advantages and disadvantages of the Multi-sided Platform business model?
The multi-sided platform business model provides various advantages and disadvantages for the companies that use it. These include the following.
Advantages
The most prominent advantage of the multi-sided platform business model is that the company using it plays an intermediary role. This business model only needs to facilitate connections between the customer and the consumer. Similarly, the company does not need to provide any products or services but only its platform.
Customers also benefit from this model as they can use its platform to gain exposure to a larger audience than they wouldn’t usually get from other means. Most top companies using the multi-sided platform business model provide customers with exposure to millions of users, which is highly beneficial.
Disadvantages
The multi-sided platform business model comes with a high amount of competition. Most established companies worldwide use this business model, making it more challenging for new companies to employ the multi-sided business model. Similarly, the established companies also face competition, making it tougher to survive with this model.
A company that uses this model needs to make heavy marketing expenditures and attract new customers and consumers. In the absence of the participant groups in this business model, companies cannot make any revenues. Similarly, the company needs to perfect its platform to retain existing customers, further expenses.
Examples
Uber and Lyft are two primary examples of companies that use the multi-sided platform business model. They allow drivers and customers to interact with passengers, in this case, the consumers.
Other companies that use this business model include Facebook, Instagram, Paypal, Alibaba, eBay, etc. Some of these are genuinely multi-sided and allow more than three participants to interact.
Conclusion
The multi-sided platform business model is becoming more common in the modern world and variations of the Consumer-to-Consumer business model. Through this model, companies can facilitate transactions between multiple participants. As discussed above, there are a few advantages and disadvantages to this model.