Multi-sided Platform Business Model-How Does It Work? (Explained)

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 one in business. The multi-sided platform business model has existed for a long time, dating back to several centuries even. However, due to the internet, it has gained more prominence than ever.

The multi-sided platform business model is beneficial for all forms of companies, whether they are startups, recently incorporated, or established ones. It has become the choice for most businesses around the world 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 that uses the company’s 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?

Companies operating under this business model provide a product or service that connects two or more participants groups. The role that the multi-sided platform company plays in this model is that of an intermediary. The company provides value by facilitating the connection between the other two participants of the transaction. Often, the company earns from one side.

Check  How Does eToro Make Money? - eToro Business Model Explained

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 with each other.

Since the primary source of income for these companies 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 but also 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. The company only needs to facilitate connections between the customer and the consumer in this business model. Similarly, the company does not need to provide any products or services itself but only its platform.

Customers also benefit from this model as they can use the company’s 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 for them.

Check  Fractionalization Business Model – How Does It Work?

Disadvantages

The multi-sided platform business model comes with a high amount of competition. Most established companies worldwide are working towards using this business model, making it tougher for new companies to employ the multi-sided business model. Similarly, the established companies also face competition from each other, 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, which needs further expenses.

Examples

Uber and Lyft are two primary examples of companies that use the multi-sided platform business model. They allow drivers, 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 truly multi-sided and allow more than three groups of participants to interact.

Conclusion

The multi-sided platform business model is becoming more common in the modern world and is a variation of the Consumer-to-Consumer business model. Through this model, companies can facilitate transactions between multiple participants. There are a few advantages and disadvantages to this model, as discussed above.

Scroll to Top