Multi-sided platforms (MSPs) refer to platforms that facilitate two or more classes of entities to create value for each other via the platform. The classic example is a video game console, where the two sides are video game developers/publishers and video game players. In the case of LinkedIn, the two sides are recruiters (either companies or head hunters) and job-seekers (passive or active). There may be other sides like advertisers, but let’s focus on those two for this discussion. The value to job-seekers is the prospect of getting a job offer, which is enhanced as the number of recruiters grows. The value to recruiter is finding the perfect candidate for the job, which is enhances as the number of active job-seekers grow. The mode of communication here is LinkedIn’s InMail, which allows paying recruiters to email potential candidates using LinkedIn’s platform.

Ideally, LinkedIn wants to grow both sides of its platform, especially the paying-side (recruiters). However, as the number of recruiters grows, the average number of InMail emails to potential candidates (job-seekers) also grows. After some threshold, the increased number of InMail emails will annoy job-seekers driving down their engagement, which will ultimately reduce the value of the recruiters. The question here is whether equilibrium will be reached or will the value decline on both sides start a fast downward spiral.

The more interesting question is where this phenomenon can be observed in other MSPs. As the number of sellers grows on eBay, selling the exact same product, does the value of buyers increase or decrease. While there may be a greater variety or choice, the resulting indecision may frustrate potential buyers into moving away from the platform. This is the issue Amazon struggled with when they started to allow 3^rd party sellers to sell via Amazon – repeat entries for the same product resulting in customer confusion.

In fact, this can also be observed in single-sided platforms that exhibit strong network effects. When I first started using twitter, I started by following my friends and news sites or blogs. Next, I began to follow twitter users in the industries I was interested and then ultimately anyone that followed me. As I amassed people I followed, I became overwhelmed with the number of tweets I would have to read for the ‘follow’ relationship to be meaningful. At this point, I quickly stopped using twitter, returning to it only once I had scrubbed the list of people I followed to a manageable amount.

As the size of a side in an MSP grows, so does the perceived value for the other side(s). However, those other sides may experience downsides as a result of that growth leading to the realized value for these other side(s) being lower than before the growth. As a result, the platform may lose engagement from those other side(s). Losing engagement is obviously bad for a platform as it will also reduce the value for the side that experienced the growth starting a downward spiral.

How much would you charge somebody to rent your apartment? What about your car? At the moment, you can find a general insurance adjusted market price for renting your apartment on Airbnb.com and your car on several websites, including Relayrides.com. In the 1990s Enron created a platform that leased excess energy capacity to companies whose energy demand exceeded their organic supply. Other companies, like Rent-A-Center, have leased appliances and home goods to low-income Americans and generated healthy economic returns for years. But what if you could rent anything to a customer? What if a platform enabled you to rent any underutilized asset to other people for any amount of time?

Rental markets have been successful for decades in markets that have transparency. Due to the manner in which social networks have engendered trust amongst strangers and to consumers’ increased propensity to conduct e-commerce, I posit that a peer-to-peer rental platform for all products could be highly successful. Particularly given the recent explosion of specialized rental websites like RentTheRunway.com and BagBorrowOrSteal.com, it is safe to say that there is demand in the marketplace for an increasingly larger mix of rental products. To capture this latent demand, a platform could be created that would charge lessors a variety of fees to advertise items (as small as paperclips and as big as airplanes) that lessee’s could either bid up or make a flat payment to rent.

If a platform were to exist, it would need to focus on three key aspects – lessor and lessee mobilization, identification of key platform features that drive the network effect, and determination of a flexible insurance scheme.

The website would first have to focus on mobilizing lessors and lessees. To attract users to the platform, the website operators would need to get enough risk capital from VCs to sustain a marketing campaign. The campaign could be focused on a small U.S. region with a high population density. Lessors might also be convinced to join the platform by offering discounted access to the platform for a few months.

The second priority would be to create and identify platform features and events that generate and sustain a network effect. Accordingly, the platform would need to enable lessors and lessees to build their reputations and participate in community boards. Heavy users would also be encouraged to meet in person. At its inception, eBay.com encouraged users to participate by hosting in person seller workshops. Such events enabled fans of the platform to meet, exchange ideas, and reinforce their commitment to sustaining the community. Similarly, Yelp.com hosts parties for its top reviewers.

Finally, the website would need to determine an insurance scheme that is flexible enough to apply to the variety of rental items while also minimizing adverse selection.

So, the next time you walk through your house or apartment, examine all of your possessions that are collecting dust and ask yourself if somebody somewhere would rent it from you. When was the last time that you actually used your blender? What about your mini-fridge from college? Or what about that space heater? In the near future, you might be able to rent those underutilized assets and generate some income.