Product Strategy in Two-Sided Markets: Designing for New Users

Executive Programme in Strategy and Leadership

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For a two-sided platform, growth is not simply about bringing in more users. Every new buyer can make the platform more useful for sellers, just as more sellers can give buyers greater choice. This creates a constant link between the two sides. As the platform grows, product decisions also become more nuanced. Leaders need to look beyond user numbers and consider who they are attracting, what keeps them engaged and how their presence affects the wider platform. Getting this balance right is central to building a sustainable marketplace.

The product changes as the market expands

For a new platform, the first challenge is getting both sides to show up. Sellers need buyers, while buyers need enough sellers to make the platform useful. This creates the familiar chicken and egg problem marketplace operators face. Early on, teams may focus on one user group, build activity in a specific market or make it easier for one side to participate. As the platform gains traction, the priority changes. Simply adding users is no longer enough. The product must give people a reason to return, interact and keep finding value in the platform.

Scale creates new product trade-offs

As a marketplace grows, more users do not automatically mean better outcomes. A larger seller base gives customers more choice, but it can also make it harder for individual sellers to stand out. More buyers can increase demand, yet inactive users may contribute very little. This is why a marketplace product strategy needs to look beyond acquisition numbers. Metrics such as successful matches, conversions, repeat usage and retention offer a clearer picture of platform health. These trade-offs become increasingly important as leaders scale digital businesses, including through ISB’s Executive Programme in Strategic Leadership (EPSL).

Designing for the next user, not just the current one

This changes how leaders should think about two sided marketplace strategy.

A platform entering a new segment cannot simply replicate the product experience that worked for its existing users. New users may have different incentives, different levels of trust and different expectations of liquidity. Product teams need to understand how these differences affect the existing network.

Think about two-sided market examples such as online marketplaces, service platforms and payment networks. Each brings two groups together, but both sides need a reason to participate. A marketplace product strategy must therefore make the experience work for buyers as well as sellers, providers and customers, or merchants and consumers. As the platform grows, the challenge changes. It is no longer only about adding users. Leaders also need to protect the quality of interactions. A decision that benefits one group can change incentives for the other and affect how the entire platform works.

Understanding these dynamics is increasingly relevant for managers building and scaling digital businesses. Programmes such as ISB’s Executive Programme in Strategic Leadership can help leaders examine how strategic choices, market structures and organisational capabilities interact as businesses evolve.

FAQs

What is a two-sided marketplace strategy?

It focuses on building a platform for two user groups whose needs are connected. Growth on one side can directly affect the value offered to the other.

What is the chicken and egg problem?

A marketplace needs buyers to attract sellers and sellers to attract buyers, making it difficult to build momentum initially.

Why does strategy change as a marketplace grows?

The focus shifts from acquiring users to improving engagement, retention, liquidity and the quality of interactions.

What should teams measure?

Matching, conversion, repeat transactions, retention and activity across both sides are useful indicators.