The march of the matchmakers.

(Book review published in Market Leader: September 2016)

Here are a few hours in the life of a modern everyman

I picked up my IPhone and Googled the location of my coffee meeting. Then I summoned an Uber and, on the way, planned my holiday on Airbnb. At our meeting we checked out a YouTube film and reviewed a Microsoft document. At the end of the meal I paid with my Visa card.

Matchmaking describes every brand mentioned above. Matchmakers (AKA multisided platforms) have integrated their way into every part of our lives. They connect members of one group (like people seeking a cab) with members of another (like taxi drivers looking for custom). Microsoft Windows connects app developers and end users. Visa connects merchants and customers. And so on.

It is not a new idea.

Women in ancient China connected potential brides and grooms, prefiguring the glut of online dating services today.  Bourses in the 18th century connected buyers and sellers of stocks and shares, just as E-bay today connects people with spare stuff with those who value it. The advent of the internet (along with faster processing speeds and high speed broadband on the move) that have turbocharged them, not least because matchmaker start-ups attract the big venture capitalists. Many of the high growth start-ups in the world are “Multi sided platforms” including Alibaba, Lending Club, Pinterest, Spotify and Tencent. The excitement about the sharing economy (and “unicorns”) is really the story of the march of the matchmakers.

A new book anatomises matchmakers– the circumstances in which they succeed and the new skills and capabilities needed to build and sustain a successful one. It’s packed with wisdom that you would not necessarily learn at business school. That’s why Matchmakers by David S Evan and Richard Schmalensee is a necessary read for anyone who wants to understand the future of the digital economy. Here are six pieces of wisdom and understanding I took away

  • Look for significant transaction costs that keep buyers and sellers apart and you have spotted the gap for a multisided platform. If it is time consuming or expensive or risky to find what you are looking for (house/holiday accommodation/partner in life/London Cab) then that is the space in which it a matchmaker can thrive.
  • Matchmakers are difficult to launch successfully because they have a chicken and egg problem. They need a critical mass on both sides of the platform to create value. It is not just about volume. The clue is in the original meaning of the word matchmaker. Amex’s launch succeeded because it connected enough successful people with the kinds of merchants that they like to use (High end shops, restaurant, airlines, hotels). When YouTube launched they needed “uploads” and “eyeballs” in sufficient volumes to become self- sustaining. Getting a platform to ignite into self-sustaining growth is the central challenge in the early years. YouTube’s founders had to work hard at encouraging people to upload and introduced design elements that made it easy to do. Platforms that fail to cross the critical mass frontier will fizzle out or run out of cash (See below)
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  • Both sides of the platform must have their interests looked after- getting the pricing right can be critical from the start. Often one side of platform does not pay at all as their presence in sufficient numbers is key to success. Searchers on Google do not pay just as women often do not have to pay to get into a nightclub.
  • Matchmakers end up as rule makers and have to worry about how users interact with each other. Uber drivers can rate their rides and vice versa. Airbnb have a very attentive customer service system to resolve disputes-for example when a renter has trashed the place. They have to be prepared to exclude bad eggs for the greater trust in the platform.
  • Matchmakers do not just launch tech platforms; they launch brands- a truly successful model for brand building that is not initially advertising led. Service experience and active communication to all sides are critical to building trust. Although investment in advertising is the servant of both growth and maintaining scale. EBay, Google and Airbnb all now use the classic advertising media.
  • Matchmakers thrive in a larger ecosystem. For example, Airbnb “sits on top of” Apples IOS operating system, which is also a matchmaker in the same way that Microsoft is. More broadly they sit within frameworks of regulation and other institutions such as trades unions and trade associations. Matchmakers disrupt (and thus come up against vested interests and opposition) which requires first class public relations.

“A multisided platform is one of the toughest business models to get right” say the authors.

It is surely, too, one of the most rewarding (if the venture capital they attract is a measure). Matchmakers is a 200-page handbook in how to do it.

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