Nonprofit Organizations as Multi-Sided Platforms

Abstract

The theory of multi-sided platforms (MSPs), originally known as two-sided markets, has been influential in helping digital platforms like Google and Facebook monetize their popular free services. However, this theory can apply to any firm that serves multiple sets of customers who are inter-related in a particular way, namely at least one type of customer prefers that there be greater numbers of the other type. Thus, in its most abstract form, MSP theory can be applied to nonprofit organizations, a setting of growing interest among management scholars. Moreover, this theory can offer nonprofit managers guidance on certain questions that for-profit managers typically do not face, such as whether to charge money for nonprofit services. We therefore focus on how MSP theory can provide practical guidance on nonprofit pricing, highlighting three findings. First, donors and recipients of nonprofit services can be regarded as two sides of an MSP. Second, the price of the nonprofit’s services will be discounted because of donor-side demand. Third, nonprofit services might be discounted to zero, resulting in free services. This paper thus extends the domain of MSPs by applying it to nonprofits, and also contributes to the growing literature on nonprofit management and strategy.