Two-sided markets are complex but lucrative

SAN FRANCISCO — The rapid growth of mobile apps has given rise to the two-sided marketplace, where both professionals and consumers use a different side of the same product or service. And these marketplaces are among the most profitable in mobile markets today, according to a panel at the first day of MobileBeat 2013.

“There are a lot of companies that are making money from mobile on day one,” said Tim Chang, a partner at the Mayfield Fund venture capital firm and moderator of the panel.

Trulia, the online real estate service, started out as a website that has quickly shifted to mobile. It’s an example of a business that caters to consumers who are looking for new homes or rentals, and it also caters to the real estate professionals and landlords who are promoting those properties. Trulia chief executive Peter Flint [above] said his firm launched on the web in 2005 and by 2006 was considering mobile. At that time, the team figured that people would want to read listings on a PC because home buying was such a ponderous matter and a big transaction.

“That was completely wrong,” Flint said. “Mobile is a huge accelerant for our business.”

Now most of the browsing by 31 million unique users is done on the web in real time, as people wander through neighborhoods and find properties they are interested in.

The initial challenge for Trulia was the typical chicken-and-egg problem. The company needed a large number of consumers to make it interesting to real estate agents, and it needed a lot of listings to make it interesting to consumers. Then the iPhone and the App Store came along and mobile turned into a real opportunity. Now the consumer and agent, web and mobile, are all services that go hand-in-hand.

Flint said that the company monetizes mobile at a higher rate than the web, as users seek realtor contacts and realtors try to reach more users. The core consumer service is free, but Trulia charges professionals to get access on a zip code basis to local data and promotion.

“The Realtors want massive reach in a tiny [geographic] market,” Flint said. “The biggest challenge has been educating the market about how mobile is a better service.”

Trulia found that, on the inside, it had to operate two businesses. One side kept building tools to service the consumers, while the other built a service that catered to enterprises and professionals. To win in the market, the company had to operate fast and get to scale before other rivals did.

“It’s an interesting question as to how you build both sides of that,” Flint said. “We ran them in parallel.”

HotelTonight has a similar business, where hotels list their last-minute listings for the night and consumers use the service to find a room. Not everything the consumer does makes the company money. They browse photos or snack. But when they book a room, the money flows to HotelTonight, which gets a cut.

Flint said that one critical thing the company did early on was business development. It cut deals to get listings from large real estate franchisers and brokers.

Chang asked how the companies dealt with consumers and professionals trying to cut the web site out, bypassing the middleman and meeting offline. The secret to preventing that is simply to offer a better service and make it easy to use, said Sam Shank, the CEO of HotelTonight.

“If you want to call up the hotel and negotiate with them for five minutes, then you can,” Shank said. “Or you can just book through us.”

Chang also asked if the companies considered getting rid of their web sites and shifting to mobile only. But Flint said that is not likely as you tend to do deeper research on listings at home on a PC and do more spontaneous browsing while on the run with the mobile app.

Above: Two-sided marketplace panelist Pete Flint during the first day of MobileBeat 2013.

Image Credit: Michael O'Donnell/VentureBeat