What is a two-sided platform?
Professor Andrei Hagiu of Harvard Business School defines a multi-sided platform as:
technologies, products or services that create value primarily by enabling direct interactions between two or more customer or participant groups.
The most common type of multi-sided platform is a two-sided one that connects buyers and sellers (like eBay). To best understand two-sided platforms, let's look at what a traditional model of buying goods looks like:
When you contrast this with the two-sided platform model, you can see that buyers and sellers are connecting directly to each other by being matched in the platform.
Examples of two-sided platforms are:
eBay
Uber
Airbnb
Taskrabbit
Kickstarter
Etsy
The key element of the two-sided platform is that both buyers and sellers get value from using the platform. Buyers find great products that they can purchase and have delivered in a trustworthy way. Sellers find an interested audience to buy products and do not need to worry about payment processing (which is handled by the platform).
In order to understand the performance of a platform product, four areas should be measured:
Buyer & seller metrics
Inventory metrics
Search effectiveness metrics
Transaction quality metrics
In a platform like eBay, the following buyer & seller metrics are important:
Total number of buyers - The number of people on the platform who have made a purchase.
Total number of sellers - The number of people on the platform who have made a sale.
Buyer and seller growth - The growth in these two numbers above.
Number of repeat buyers / repeat sellers - The number of people on the platform who made a second purchase/sale.
Growing a platform business
Note that the growth of a multi-sided platform is a big challenge. How can you attract buyers if there are no sellers? How can you attract sellers if there are no buyers visiting the site? This is a genuine chicken-and-egg problem.
Typically, this is solved by "seeding" one side of the network. That means spending money to populate and attract one side of the network (typically sellers) and then later generating revenue when buyers are attracted by this existing platform full of sellers.
Therefore, when seeding the seller side of a platform, you really care about the total number of sellers. However, sellers may leave the site if nothing is sold. So you must also pay attention to the total number of buyers to some extent - just to retain the sellers that you are adding!
In platform businesses, the number of products/services available to purchase in the platform is the platform's inventory or a complete listing of merchandise or stock on hand. Inventory helps you measure whether each seller has sold multiple products or provided a service multiple times.
On eBay for example, you would want to measure the:
Total number of product listings.
Average number of listings per seller.
On Uber, for example, you would want to measure the:
Total number of rides given per city per day.
Total number of occupied/available cars.
In order to retain buyers, you need to provide an experience where they can find what they want most of the time. One way to measure if the platform is providing such an experience is to examine search metrics including:
Number of searches done
Number of results per search
Number of searches that have no results
The question you are trying to answer here is "how many searches were done where the buyer would have been happy." The reason this is valuable information is because if the platform can provide what the client wants most of the time, then you are likely to see purchases.
You could also look at:
Most lucrative search terms
Most commonly searched products
This will help you prioritize what type of products and sellers you need to attract to the platform. This is valuable, actionable information.
One could imagine that users might stop using a site like eBay if the following things happened:
Buyers paid for products that never arrived.
Buyers experienced high volumes of fraud.
Buyers bid a lot, but sellers canceled the auction just before the end.
Most sellers had low ratings.
These type of events would suggest the quality of the platform was low. There are two types of metrics you can use to evaluate this:
Transaction frequency
Transaction quality
1. Transaction frequency
Transaction frequency tells you how often a seller gets business from the site.
Percentage of sellers who make at least one sale - You can consider the seller to be fully on-boarded when they make their first sale. Making the first sale motivates the seller to list other products in the future.
Percentage of listings that result in a sale - This allows you to make sure that the seller feels it is worthwhile to take the time and effort to list an item.
2. Transaction quality
Transaction quality tells you how often the buyer gets a satisfactory product or service after paying for it. You can get an idea of transaction quality by looking at the following metrics:
Percentage of reported abuse - Abuse can take many forms in a platform product. This could be flagged listings on Airbnb or eBay where a buyer indicates suspicious activities. If a user reports abuse, you need to investigate and determine if there are abuse issues or not. The ratio of abuse reports to false abuse reports should also be considered.
Percentage of sellers with low ratings - After a buyer has made an order, they are often invited to review the seller. When a buyer is not happy with a seller's performance, they can leave a low rating. If a large percentage of the sellers have low ratings, then this could indicate that buyers, in general, are having a poor experience and will not purchase from this site again.
Percentage of positive ratings - Just as negative ratings hint that the buyer had a poor experience, positive ratings show you when they have a positive experience.
Fraud metrics - Any time a buyer (or seller) has been the victim of fraud, it has to be taken seriously. It takes time, resources, and money to investigate and perhaps requires cooperation with law enforcement officials. Measuring the number of true fraud reports will be important due to the cost of investigating and the bad buyer experience.
Summary
Multi-sided platforms are marketplace type products where buyers and sellers can be matched.
In order to measure the performance of a multi-sided platform, you should look at:
Buyer & seller metrics
Inventory metrics
Search effectiveness metrics
Transaction quality metrics
Additional Resources
How platforms facilitate exchange.
