What is the most effective method to building a two-sided marketplace?

This is a classic chicken and egg problem. We need both users to be active in order to be successful, therefore requiring us to target both user types at once.


For four years, I was the marketing manager at Axial, a two sided marketplace that matches investors with companies looking to sell their businesses. We figured out the chicken and egg problem, then figured out how to market and sell each side in a way that scaled.

When you think about building a two-sided marketplace it seems daunting, as your question reflects. It feels like you need to get everyone active all at once in order to create any value for anyone. But the truth is that you really only need to get one side engaged.

The way I think about two-sided marketplaces is like a grocery store. A grocery store is one of the original two sided marketplaces: there’s a customer who needs fruit or milk or something else and there is a farmer who needs to sell fruit or milk. The grocery is the conduit between them, the two sided marketplace. If the farmer (or other vendor) can’t consistently sell their goods at the store, they’ll sell somewhere else. If the shopper doesn’t find the fruit or bread or other products they’re looking for on a regular basis, they’ll go somewhere else.

The value of thinking about a two-sided marketplace like a grocery store is that it’s obvious who needs the product now and who is willing to wait awhile. The shopper has a very time limited window to buy the product - they’re going to be in the store for a half hour then they leave. If the product isn’t on the shelf, they’re not waiting for it. If the fruit is bad, they’re not buying it.

The product on the shelf, on the other hand, can wait around. But each product does have a shelf life - some products, like canned foods, might last years while others, like fresh fruit or bread, might last only a couple of days. So, while the times need to match up, each side has different time requirements.

In hacking a two-sided marketplace it helps tremendously to figure out which side of your market is the shopper and which side is the product. It’s not always obvious though. Sometimes what is being “bought” on your marketplace is actually the shopper.

In the case of Axial, we were helping investors buy companies. It seems like the shopper is the investor. But it’s not - they’re actually the ones willing to wait around for the right company to come to them. The company being sold actually has a very short time frame to find the right buyer - usually a two week window in a well run sale process. On our marketplace, the two underlying assets were investor profiles and company profiles (to simplify everything). The investor profiles actually became our product on the shelf while the companies became the shoppers - even though it was the investors buying the companies. The investors were more willing to wait for the right company rather than the other way around.

That insight helped us understand how to hack the marketplace to success. The side that is willing to wait around longer is almost always the easier side to collect. If you’re starting a grocery store, it’s always better to go talk to all the vendors and fill your store with product before you open it to shoppers. Leading shoppers through an empty store doesn’t meet their immediate need of needing to make dinner tonight. Talking to a farmer about the neighborhood customers you’ll have as soon as you open is a lot easier. And the farmer is more willing to have low sales at first in order to secure his spot on your shelves so his competitors don’t get the prime space he’s going to want later.

If you think about Uber, which is clearly creating a two-sided marketplace of drivers and riders, they operate exactly the same way. In Uber’s case, the driver is the product on the shelf. The rider is the shopper. The drivers are willing to drive around for hours looking for rides. A rider will open the app, see if they can get a ride quickly, and if not will go to an alternative like Lyft, a taxi or the train/subway.

That’s why Uber is spending so much money to acquire new drivers. They’ll pay drivers thousands to join, even buying them cars in some cases. They’ll sign limo drivers up as Uber Black drivers, convincing them that they’ll make as much or more than they are in the limo business. Then, when there is only UberX riders around and not enough drivers, Uber will eat the cost of paying an Uber Black driver to drive an UberX ride.

Uber realizes that riders (shoppers) only use Uber (visit the store) if they’re confident good rides available when they want them (products they want are in stock and fresh). So Uber is hacking the product and letting it sit on the shelf (drivers driving around looking for rides) because that’s the only way to make sure they don’t lose to taxis or Lyft.

I hope that gives you a framework to use as you think about growing or starting your two-sided marketplace. If you’d like to chat with me as you think through your marketplace, I’m available as an expert here on Clarity. I’m happy to make specific suggestions for how you can structure and grow your business. Good luck.

Answered 9 years ago

First, let's discuss your stack -

I have some good case studies I'd like to discuss with you related to this. I've launched 2 marketplaces using WordPress only, and a few others using a combination of WordPress only as the frontend. I'm a huge fan of creating your platform using as little dev costs as possible, testing your idea, then deciding what is the best code to scale with. This “MVP” strategy can be applied to marketplaces by using one of the many WordPress themes built to replicate a popular marketplace (i.e. Fiverr, Etsy, AirBnB…).

Simply search the platform you are trying to replicate “_____ + WordPress themes”.
Load and customize your theme.
Send out your email invites and bring in your first audience to test.

Fix the bugs, funnels, messaging…

Head to to convert your new platform to a native mobile app (total cost ~ $700).

Continue marketing until you have proven your model.
Begin custom development on a stable code base like angular .js.

Like I said, I'm a firm believe in using WordPress to launch and test. But I am not convinced you can stay in WordPress past the initial 100 active users/shoppers/day. At this point, issues willl arise including:

Database and user management
Customization limitations
Load limitations

So in short, build your MVP in WordPress and plan to take out some funding and have a dev team for when you are ready to scale.

Now, let's talk marketing -

Create a ‘hook’ for the service professionals - what’s going to keep them there while you are finding the egg… Thumbtack was very creative in that they built a tool that allowed professionals to post their new profiles to Craigslist:

“To start, we built a tool for professionals to easily post their Thumbtack profiles to Craigslist. Independent pros were already using Craigslist—we simply helped them better show off the quality of their work and highlight their online reputation. Chris Dixon rightly calls this approach, “come for the tool, stay for the network.” But once you’ve built a useful tool, the challenge is how to get it in front of people.”

This worked well because their service pros were already doing this. But, their manual process yielded ugly profiles.

For yours, it could be as simple as an embedded widget that pumps out calculations in return for an email address. Whatever it is, you will need something to keep them busy while you create demand.

Choose your local targets - where can you prove your model and test your process, messaging, systems and team? The best bet is where the competitors are not now or not ever. These may not be the “ideal” markets, but they will be ideal for testing.

Create an automated process for bringing in the service professionals - Your service providers need to be offered your new hook on an automated (continual and full-funnel) basis. I recommend starting with Facebook. There, you will be able to target by location and profession, and retarget those who come to your site, but do not convert. If your platform is more niche or high-end, you may consider display ads, Linkedin or Pinterest.

In either case, you will need to automate the service provider acquisition process.

Setup your CRM and email service - With all of the new potential chickens and eggs coming to your site, you will need a CRM to track and respond to it all. You will also need an email responder in place so that those emails you capture will stay in your funnel and inevitably convert. I recommend this CRM Software, Sales and Marketing Automation. Agile has created a CRM and Drip service in one. It’s well worth the <$80/mo.

The next step is to build your lists - You will need a good email list of customer prospects, as well as a list of contacts for your content marketing. You can use Linkedin and this site to grab email addresses for free: Find email addresses in seconds. To get your content and name out there, you will need to get in touch with bloggers, editors, and influencers in your niche. Use social sites and search to find these people. Use to decide if the sites are worth your time or not.

Make sure you have your messaging dialed in before you start this process. You will want to attach your purpose to a pain point in the community or niche in order to gain press.
Now that you have the service professionals coming in, and a system for keeping them in, you need to focus on customer acquisition - Hopefully you will be able to attract customers through organic search and PR. For instance, if your platform is niche enough, your developer setup the site correctly, and you have a lot of suppliers/pro’s, you should be able to start climbing the search rankings quickly. Your category pages should rank. If not, reconfigure.

If the size of your jobs (commission or revenue), you may need a sales force and/or a large ad budget to target the customers. If you are in this situation, contact me for more specific instructions. But for now, setup a funnel that is very specific to customer needs. This could be a cold email with a link to a category page of service pros they would be interested in, a targeted ad to that same page, a guest posts on sites that speak to your target audience, or various other methods… Just make sure you are capturing emails at this stage as often as possible. You may be getting a lot of traffic who are interested based on the newness, but not ready to order at the moment. Offer everyone a free download or something to get their email now. Then they will be in your drip and hopefully see an email from you next time they really need a service provider.

Send those campaigns - Use your CRM to start your drip sequences to the emails you have loaded. Search out some templates that have worked in your industry, and test out a few.

It’s late and I’m exhausted, so I’ll end it here

Best of luck!

Alex -

Answered 7 years ago

True, for a marketplace platform to be successful, you will need healthy growth of both the consumers & sellers of a service/product.

A good thing is after eBay established itself, there have been several platforms that have been able to successfully grow marketplace platforms - such as Uber/Lyft, ODesk (now Upwork), Etsy, AirBnB. So you can compare and see how they were successful.

For most of the platforms it is usually key to identify the 'demand' & 'supply' side of the marketplace. Make sure there are sufficient listings/service providers for the 'supply' side of the marketplace before you begin targeting or sourcing the 'demand' side.

In the case of Uber it was 'drivers', ODesk - 'freelancers', Etsy - 'Sellers/products'. Once you have sufficient listings on the 'supply' side, then demand will automatically pick up.

Here are a few strategies to help grow the marketplace
- make sure the quality of the listings and the users are high. You should vet your users as they go through the sign up process
- The marketplace should offer a uniquely competitive solution that both type of users find valuable
- Provide customer support and seek feedback from users to ensure you can improve the marketplace experience

Again there are several more areas that should be focused on as the marketplace grows such as Payments, Dispute Resolution etc. I have had the opportunity to build marketplaces from groundup, and would be happy to review your marketplace offering and provide feedback. Feel free to reach out.


Answered 9 years ago

A lot of great advice here.

On top of that, here's a brilliant article by my friend from a startup called UniPlaces - I hope you'll find it useful!

Answered 9 years ago

I generally find there are ways to "seed" one side or the other. I tend to focus on seeding the side of the supply, but it really depends on the marketplace industry. Glad to discuss with you for you specific details.

Answered 9 years ago

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