A two-sided market (2SM) is one that requires a critical mass of two distinct groups of customers interacting with each other. YouTube is a good example of a two-sided content service of users and content creators.
Social products like Facebook and Twitter generally have a relatively small amount of people who post the majority of content and a large group who passively consume it. Uber is a two-sided service in the physical world of riders and Uber drivers.
The classic example of a 2SM is an e-commerce site where you need a large amount of buyers and sellers. For simplicity, throughout the rest of this post, I will refer to the consumer side as buyers and the content creator or service provider side as sellers.
At scale, two-sided markets are extremely defensible businesses. However, they are typically really hard to get off the ground.
When starting from zero, how do you attract buyers when you don’t have sellers?
Conversely, the first question the sellers will ask you is “how many buyers do you have?”
Building a 2SM is an important topic because this is one of the hottest areas for launching a new product or service in Africa and other emerging markets.
Based on my experiences of launching two-sided products in emerging markets (both successfully and less so), here are some of my takeaways.
These learnings apply mostly for a new product starting in emerging markets. Later on in the post I will cover some steps for expanding a global marketplace product into emerging markets.
Do You Really Need A Two-Sided Market?
Building a service for both buyers and sellers is really tough. It usually means you need two of everything — two products, two marketing campaigns, two sales teams, two operations teams, etc.
Try and simplify the initial version of your product or service so you can just focus on either buyers or sellers at the outset. One approach is to build the service such that all customers have the same role (e.g. everyone can be a buyer and a seller).
Another approach is to build the product in such a way that consumers can get value from the product just by using it for themselves or by using it with other consumers. For example, in a payments product, consumers can get value by just storing their money in the system or by using the product for person-to-person payments. In this model, enabling person-to-merchant payments is a next step once you have enough merchants.
Focus On Great Sellers First
If you do indeed need a 2SM, invest in having great sellers first before trying to solve the buyer side. Fake it if you have to by “seeding” the marketplace.
There’s nothing wrong with that. This might involve selling things yourself or directly paying people to be sellers in your marketplace. Many of today’s great two-sided products like PayPal, Reddit and Airbnb used this approach. Directly paying people to be sellers is not sustainable at scale but it can be very low cost in emerging markets especially when you are just starting off so if you can afford it — just do it! This will also help you get the experience of being a seller and give you more control.
It’s key to have great sellers first as they will drive the image of the service and they will influence buyer’s perception. Your initial sellers will also model the behavior that you want your organic sellers to have.
We tried this approach in a Question and Answer product (similar to Yahoo answers) that we launched for Africa, the Middle East and South East Asia. A user generated content site with no content has the cold start problem — new users will ask what is this product for? What value can I get from using it? To solve this before the launch, we hired teams of people to post real local questions and answers that would be relevant for the intended audience.
When we opened the service to the public, the new users immediately got value from the product and they quickly understood the type of content that we were aiming for.
For a product that is already established in a developed market and is trying to expand to users in emerging markets, here is my recommended order of operations.
Enable Local Buyers To Get Access To Global Sellers
Users in emerging markets enjoy content and services from developed markets just as much as everyone else. For example, users in Egypt, Nigeria, Philippines want to buy products on Amazon and watch shows on Netflix. When these global services aren’t available locally, they will find ways to get them anyway.
People will ask a friend or relative in the US or UK to let them use their username, address or bank details to register for the service. Another example is social products like Facebook which initially grew in emerging markets as a way for people to keep in touch with their friends and relatives in the Diaspora.
The first step you can take for your product is to allow a user based in emerging markets to join your service even if you only support English language, US credit cards, etc. Users will find a way to use your service.
Enable Local Sellers To Sell To The Global Audience
There are many talented content creators, developers, artisans and manufacturers in emerging markets who just need access to the global market and a way to monetize their work.
Allow these local sellers to join your service even if you only support English language interfaces for sellers and payout to them in US or UK bank accounts (following all legal, tax and accounting rules of course). They will find a way to get their funds. There might be only a small number of sellers in each emerging market country who can produce relevant and quality content and products for your service but every new seller you add to your service helps.
Also, the story of the local seller who makes it big on your service can be very intrinsically rewarding for your team and plays very well in marketing and in the press.
Enable Local Sellers To Sell Through Local Methods
Once you start to have a sizable number of local sellers, it makes sense to start to localize their experience.
Enable the sellers to get paid quicker and more directly by paying them in local currency and transferring their funds to their local banks.
Even if these improvements don’t attract more local sellers, it will at least enable your top local performers to have more cash flow. This could make them more motivated and more productive and also build their allegiance to your marketplace.
Enable Local Buyers To Buy Through Local Methods
Once you start to have a sizable number of local buyers then you can justify investing in localizing their experience. This might involve fully translating the product to a local language and enabling users to pay with local forms of payment (cash on delivery, local bank accounts, mobile carrier billing, mobile money, etc).
It might also involve building a special “light” version of the product to work better in emerging markets conditions. For example, Facebook has a “Facebook Lite” version of their core application. The Lite version is < 1MB, uses less data and is designed for areas with slow network connections.
However, it is important to note that this local version of your product is just a temporary or stopgap solution because emerging markets users typically want to use the same version of your product that everyone else is using.
What are your thoughts on the challenges and solutions for building marketplaces in emerging markets?
Cover Image: Anete Okonkwo