The economics of One-Sided vs Two-Sided Digital Platforms explained. A two-sided digital platform is driven largely by network effects. Significantly, a boom on one side positively impacts the number of participants on the other side. These two-sided markets require both parts of the equation to participate and deliver value for the platform to work.
A classic example of this is Uber since its value to potential drivers increases when the number of customers swells.
The challenge in building out a two-sided platform is which side of the platform to focus your energies on to build out first. In order to, create demand and attract customers to the platform, you need to have service/product providers. Naturally, in order to attract service/product providers, one needs to have potential customers.
Therefore, from a strategic perspective, the platform owner needs to decide how to monetise the platform economics. Consequently, this will amplify which user group the customers or providers to offer freemium services to. Whilst, focusing on implementing a charging strategy for the other users on the platform.
As a result, of creating demand on the one side of a two-sided platform the platform owner positions themself to attract their paying customers to the platform. Specifically, the user group that they intend to monetise through the platform.
The value of a two-sided platform grows incrementally as network effects result in increased customers attracting new providers. As a result, of new more customers, new providers will join the network.
A one-sided digital platform consists of just one group of participants from whom it extracts its value. A great example of a single digital platform is a pure B2C eCommerce venture, such as www.asos.com. Whereby, the platform owner often a retailer spends money, to acquire customers, whom it will monetise through the sale of products. The economics of the platform is a direct function of the net return yielded from each customer using the platform. Strategically, the platform owner creating a customer acquisition strategy and retention around a defined group of platform users and their spending profiles. A one-sided platform thrives more as a result of monetising customer loyalty than through Network Effects between users.
For more insights please refer to Platform Economics explained
