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Business models in strategic management
Business models in strategic management

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2.3 The matchmaking business model

This is the business model of a firm which controls a platform where sellers and buyers of products or services can meet and trade. Typical examples of this business model are Deliveroo and Just Eat, which control platforms where restaurants sell their food to customers and both these parties (restaurants and customers) pay a fee to the platform organiser. Platforms do not only exist online, though: local markets are typically controlled by local authorities which rent spaces to sellers for annual fees. The difference is that buyers at the local market just pay the seller for their purchase and do not directly pay the platform organiser. The same applies with the online market place eBay, which does not charge the buyer for purchasing items or using the platform.

Another interesting example of this type of business model is stock markets: initially they were physical places where stocks were traded in person, while now, almost all exchanges are digitised.

The following animation shows how the matchmaking business model works.

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Animation 3 Matchmaking business model
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Digital technologies have opened vast possibilities and allow more sellers and buyers to access the market: think about how the availability of smartphones and broadband mobile connection gave rise to services like Uber and Lyft, which connect drivers and passengers through online platforms, accessible from smartphone apps.

Having success with this type of business model is difficult and requires fulfilment of several elements:

  • identifying what buyers and sellers will trade, such as a service or goods
  • facilitating buyers and sellers interacting on the platform, in a way that the offer is available when buyers look for it: for instance, having enough drivers to satisfy transport demands without leaving many buyers unsatisfied and in search of alternatives
  • creating a good level of trust between the buyers and sellers: buyers want to be sure that they will receive what they were promised in terms of quality and delivery time, sellers look for secure payments. PayPal as a payment system is suggested by eBay, its parent company, to assure buyers a quick solution for problems around missed delivery or unsatisfactory quality of purchased items. This is because it offers a series of protections for sellers and buyers such as the possibility of getting refunded if the product does not match the description on the website
  • develop charging mechanisms to capture value from transactions: these are typically based on a fee to be paid when a transaction takes place
  • directly control the development of the marketplace and engagement of customers on both sides of the marketplace, without outsourcing these two critical activities to third parties.