Strategies for Two-Sided Markets

It seems almost every business I come across these days, particularly those of the Web 2.0 ilk, are essentially two sided markets.  Audience and advertisers, job seekers and hiring companies, dating sites, you name it.  My last company, Pivot, was literally a two-sided market (as in financial market).  When we started out, back in 2003/2004, there really was no roadmap for launching a business like that which is why I was thrilled when HBR published a paper on "strategies for two-sided markets" by Prof. Tom Eisenmann et al.  It's a couple of years old, but a must read for anyone starting a two-sided market business.

There are a lot of good points in the paper, but the main one is that every market has a side that is more valuable and it is important to get the pricing right (which often involves one side of the market subsidizing the more valuable side).  For example, it's free to join Monster as an employee but companies pay to post jobs (although TheLadders discovered that $100K+ employees are more valuable than companies).  It seems obvious...every mall charges rent to retailers but who ever heard of a mall that charged entrance fees?  But you would be surprised how many companies get this wrong.

Comments

[Jim]

Thanks for calling attention to Eisenmann's paper on this still timely topic. I get your point at the end about the "one side subsidizing the other" and the reversal of value-prop that TheLadders recognized.

Curious: Has TheLadders been successful with their "entrance fee" for the mall?

Semantics: Using the "valuable" term as you did, aren't you saying that Monster views the "employee as more valuable" and in the 100K+ job market, TheLadders views the job-opp as more valuable? Hence defining the cash direction?

Thanks!

Jim

[FN]

Thx for the comment Jim!

From what I hear, TheLadders has been very successful. I recently read an article talking about a $7BB valuation.

And yes, Monster definitely views "resumes" as most valuable. They have very detailed metrics on acquisition cost and, hey, their Superbowl ads target employees not companies!

Regarding TheLadders, you raise a good point. Using the logic of the paper, the company is more valuable. Hmmph. Need to think about that.

[James]

Great pointer to the Harvard article and great topic for discussion. One note: the link to the Harvard paper shows up for me with two http:// references. Remove one and the link will work.

[John]

The two-sided networks or as you have mentioned the two sided markets have become very popular. Credit cards, end-users and developers system are perfect examples. Internet is one of the most popular two sided markets of the 21st century. If I am not mistaken together with price adjustment one should take into consideration networks effects as well, otherwise it would be hardly possible to avoid mistakes. What about multi-sided markets? I just begun to wonder if you have money and you want to start a business is it better to develop two-sided or multi-sided market.It depends, I know…

[Deborah Block-Schwenk]

Two-sided markets are definitely prevalent in the Web 2.0 world and your article describes the situation very well. I work for a site, http://www.catalystcode.com, that looks at current business news from the perspective of two-sided markets. Please take a look, your feedback is welcome.

For a more academic treatment of the subject, there are some great resources at http://www.26econ.com/resources/