Title: Matchmakers: The New Economics of Multisided Platforms
Authors: David S. Evans, Richard Schmalensee
Year: 2016
Category: Business Model Innovation

Introduction
“Matchmakers: The New Economics of Multisided Platforms” by David S. Evans and Richard Schmalensee explores the transformative power of multisided platforms (MSPs) in modern economies. These platforms serve as intermediaries facilitating value-creating interactions between different user groups, leveraging network effects to create value. The book provides a deep analysis and numerous case studies to illustrate how these platforms operate, succeed, and disrupt traditional business models.

1. Defining Multisided Platforms (MSPs)

Point: Multisided platforms facilitate direct interactions between two or more distinct but interdependent groups of customers.

Example: Examples include credit card companies connecting cardholders with merchants and video game consoles connecting gamers with game developers.

Actionable Advice: Identify potential user groups that could benefit from direct interactions within your industry and consider how you might facilitate these interactions through a platform model.

2. Understanding Network Effects

Point: The value of a multisided platform increases with the number of users. These network effects can be either positive or negative.

Example: Facebook’s value as a platform grows as more users join and add content, enhancing the experience for everyone.

Actionable Advice: Focus on strategies to rapidly grow the user base on all sides of the platform to maximize positive network effects, such as offering incentives for new users or exclusive content.

3. Chicken-and-Egg Problem

Point: One of the biggest challenges for MSPs is simultaneously attracting multiple user groups who each depend on the presence of the other.

Example: Airbnb needed both hosts willing to rent out their spaces and travelers willing to book them. Early strategies included manually creating listings to attract initial users.

Actionable Advice: Consider subsidizing one side of the platform initially to build critical mass. For example, offer discounts or benefits for one user group until the platform gains traction.

4. Pricing Strategies for MSPs

Point: MSPs often adopt asymmetric pricing where one user group may be subsidized while the other is charged more.

Example: Dating platforms often allow women to join for free while charging men, reversing the model in some markets based on cultural norms.

Actionable Advice: Experiment with different pricing models to determine what structures maximize user engagement and platform growth. Look at metrics like user retention rates and conversion for guidance.

5. Regulatory Environments and MSPs

Point: Regulatory challenges and market norms can significantly influence the operation of MSPs. Regulations may lag behind innovations posed by MSPs.

Example: Uber faced numerous legal challenges in different cities regarding the classification of drivers, impacting their business operations.

Actionable Advice: Stay informed about regulatory landscapes in your industry and be prepared to engage in dialogue with policymakers to shape favorable outcomes for your platform.

6. Trust and Safety

Point: Establishing trust among users is crucial for MSPs. This involves implementing safety measures and ensuring reliable interactions.

Example: eBay introduced a rating and feedback system to build trust between buyers and sellers, which was crucial for its success.

Actionable Advice: Invest in robust trust and safety mechanisms early, such as identity verification, user reviews, and secure payment systems, to foster a comfortable environment for users.

7. Platform Design: Simplicity and User Experience

Point: The design and user experience of a platform can significantly impact its success. Platforms should be user-friendly and minimize friction.

Example: Apple’s App Store simplifies the process for app developers to reach customers and for users to find and download apps.

Actionable Advice: Regularly solicit feedback from users to identify pain points in your platform’s design and continuously iterate to improve usability.

8. Scaling the Platform

Point: Scaling an MSP involves growing its user base without diluting the quality of interactions.

Example: LinkedIn maintained a focus on professional networking, creating robust features like endorsements and job listings that scaled efficiently with user growth.

Actionable Advice: Develop scalable infrastructure and continue to focus on quality control measures, such as user moderation or algorithmic matching, to maintain a high-quality user experience.

9. Monetization Approaches

Point: Diverse monetization strategies exist for MSPs, including transaction fees, subscriptions, and advertising.

Example: Google’s monetization primarily comes from targeted advertising based on user search data, providing value to both users and advertisers.

Actionable Advice: Explore and test multiple revenue streams directly aligned with the value provided by your platform to ensure robust and sustainable monetization.

10. Competing with Traditional Businesses

Point: MSPs often disrupt traditional business models by offering more efficient or attractive solutions.

Example: Amazon disrupted traditional retail by providing a vast selection of goods online with easy access and competitive pricing.

Actionable Advice: Highlight the distinctive benefits of your platform over traditional business models, such as convenience, wider selection, or better pricing. Utilize marketing strategies to communicate these benefits clearly to your target audience.

11. Entering Established Markets

Point: MSPs entering established markets must offer clear value advantages and navigate network effects and competitive pressures.

Example: Spotify entered the established music market with a compelling subscription model, extensive music library, and user-friendly interface, quickly gaining market share.

Actionable Advice: Identify key areas where your platform can provide superior value or a better user experience than existing solutions, and target those advantages in your market entry strategy.

12. Collaboration and Partnerships

Point: Strategic partnerships can accelerate platform growth and enhance user value.

Example: Square partnered with Starbucks to provide mobile payment solutions, implementing its technology in a major retail chain.

Actionable Advice: Seek out strategic partnerships that can help accelerate user acquisition or enhance the platform’s value proposition, ensuring mutual benefits for both parties involved.

Conclusion

“Matchmakers: The New Economics of Multisided Platforms” delves into the mechanics, challenges, and strategic considerations of operating successful MSPs. By understanding and leveraging the unique dynamics of MSPs—including network effects, user trust, platform design, and strategic monetization—entrepreneurs and business leaders can harness the full potential of this transformative business model. Practical steps derived from the book’s insights include fostering trust, considering asymmetric pricing, focusing on user experience, and exploring diverse monetization strategies. These actions can guide individuals and organizations in creating and scaling multisided platforms that offer significant value and disrupt traditional economic models.