So what is a “multi-sided platform” (MSP) and why are they important?   An MSP brings together different groups of customers and sellers – and creates what is referred to as a “network effect.”

Google search is a good example.  It is a place where potential customers can come to search and learn about products.   It is also a place where businesses can advertise their offerings.   The more people that use Google search,  the more data Google has.   Then Google can use the data to improve its searches,  and advertisers  can leverage these benefits to get their advertisements in front of more of the right types of audiences.   So,  Google has created these loop where it can continue to create better search  and better targeted advertising.

When start-up thredUP launched its peer-to-peer online exchange for used children’s clothes two and a half years ago, its creators were the latest generation of entrepreneurs competing online as multi-sided platforms (MSPs), alongside trailblazers such as eBay, Yelp, and eHarmony. MSPs create value by facilitating direct connections between multiple types of affiliated customers, which most often leads to network effects. Think of what a shopping mall accomplishes in bringing together a multitude of sellers and buyers who interact directly with each other under one roof rather than through a third party. By contrast, a grocery store also creates a space for consumers and multiple brands to meet-but the store controls the transaction, serving as a reseller. Done right, the MSP model has proven extremely lucrative, throwing off much higher percentage profit margins than those enjoyed by traditional resellers. Also, MSPs can be less capital intensive for start-ups. No wonder, then, that an increasing number of entrepreneurial ventures such as thredUP have been attracted to the MSP model. But in 2012 thredUP’s management changed course-it abandoned its multi-sided platform strategy to become an online reseller of used children’s clothes, buying inventory from parents and reselling it to other parents.

Business Model - Winning the Multi-Sided Platform

Highlights by David Willden