Strategies for Two-Sided Markets

Mall480It 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.