The Economics of Matchmaking

Have you ever wondered about the key growth drivers of companies like Facebook, Apple, Google, and Uber? One thing ties together the business models of all these companies: they facilitate interaction between two or more customer verticals, and are hence called multi-sided platforms.

The book Matchmakers, by David S. Evans and Richard Schmalenesee, brings out the stirring and unconventional economics behind these models with the help of numerous case studies. Matchmaking businesses, they point out, are not new. From literally matchmaking grandmas to bars for people to mingle, multi-sided platforms are a part of life. Since the early 1990s, the dotcom boom has eased the friction in transaction of business and information, especially through such platforms. Technologies like the Internet, the Cloud and smartphones have “turbocharged” 21st-century matchmakers like Google and Uber.

Evans and Schmalenesee dive into the strategies of some of today’s biggest multi-sided platforms. As very little literature on the working of multi-sided platforms was available till the mid-2000s, most startups built strategies through their own trial-and-error experiments on network effects. The book talks about these experiments, outlining the economic underpinnings of matchmaking platforms.

The ‘first-mover advantage’, Matchmakers points out, is a myth. The success of Facebook over Orkut, and that of Microsoft over Symbian, is not a coincidence but the result of an intelligent oiling of the frictions in their business. Facebook designed a more user-friendly platform and deterred bad behavior from its participants better than its counterparts did. Microsoft beat Symbian by streamlining the process for app designing, as Symbian lacked an organized way to do the same thing.

The scope of most of the cases used in the book is not limited to the multi-sided platforms. Most of the business strategies are an integral part of designing one’s business. Designing a user-friendly platform and deterring bad behavior are important parts of traditional businesses too. Readers might feel a lack of consistency in the flow of ideas in a few places, but overall it captures all the major concepts of these business models.

If you’re interested in the success stories of YouTube, Facebook, Apple, Google and more such platforms and would like to understand their intelligent strategies, then this is the book for you. Matchmakers is not a rule book of generalized economic theory that will work for every matchmaking platform, or a success guide for your startup. But it is a must-read for ambitious entrepreneurs and people interested in unconventional economics.