Source: Tech – South China Morning Post[The content of this article has been produced by our advertising partner.]
Amazon’s three-decade journey from a Seattle garage to a US$1.8 trillion market cap demonstrates the almost limitless potential of two-sided marketplaces in the internet age. It’s a simple concept; match buyers and sellers using their smartphones and then take a cut from the resulting trades.
Two-sided marketplaces, also known as consumer-to-consumer (C2C) platforms, lack inventory and have low staff costs, which powered the concept into sectors as diverse as freelancing, holiday rentals and second-hand clothes. They also permanently changed global shopping habits with China alone recording US$3.3 trillion worth of sales in 2023.
The success of Amazon and its Chinese peer Taobao demonstrates the other major advantage of this business model – scalability. But achieving scale costs money, lots of it. Amazon’s first profit in 2001 came off the back of losses close to US$150 million in the previous year, and other big names have plunged even further into the red as they pursued growth.
Uber burned through US$25 billion of cash over 13 years before recording its first quarterly profit in 2022, vacation home platform Airbnb lost US$1.2 billion in the year ahead of its 2020 IPO, and Walmart-backed Indian e-commerce outfit Flipkart burnt US$3.7 billion of investor’s cash in 2022.
“We have probably all seen many business cases where companies burn cash to grow their marketplaces in the early stage,” says Kevin Chen Hongfan, Assistant Professor of the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School.
While matching buyers and sellers and taking a cut is a simple idea, the interplay between the diverse groups active on these platforms is complex. With the established business model of C2C platforms typically being to subsidise the early stages of growth and then make profits over the long term, discovering the most efficient way to incentivise participation has major…Read More