Leakage in B2B2C Platforms: Tackling the Hidden Threat

In today’s fast-paced digital economy, platforms increasingly become the glue that holds businesses and consumers together. Whether you’re ordering food through an app, booking a stay on Airbnb, or hiring freelance talent via Upwork, B2B2C platforms have become essential in making our lives easier. But there's an underlying challenge that often goes unnoticed by users and unchecked by businesses: leakage.

Leakage occurs when service providers and consumers bypass the platform, cutting out the middleman and avoiding transactional fees. This challenge can cripple the very foundation of these platforms. So, how can businesses solve this growing problem while maintaining the value proposition of their marketplace? Let’s dive deeper into how leakage manifests, why it happens, and what businesses can do to fix it.

Understanding Leakage in B2B2C Platforms

Let’s start with a relatable scenario. Have you ever used a service on a marketplace platform and had the provider suggest bypassing the platform entirely? Perhaps you’ve booked a taxi on Uber, and the driver requests cash. Or maybe an Airbnb host offers you a better deal for booking directly next time. These examples are not isolated—similar occurrences happen across industries, from food delivery to healthcare.

The core of this behavior lies in the human instinct to avoid high transactional fees. Platforms like Uber, Booking.com, and Fiverr typically charge a commission per transaction, and both consumers and providers are motivated to avoid these fees when possible. This is where leakage occurs: when providers and consumers leave the platform to conduct business directly, causing the platform to lose revenue and potentially long-term customers.

A Personal Perspective

Having developed multiple B2B2C platforms, I’ve encountered this problem firsthand. For example, when we launched Classnpay, an online platform connecting instructors and students, class owners often encouraged customers to bypass the platform and pay them directly. Similarly, in an online pharmacy project, doctors and pharmacists frequently offered to sell their services directly after the first interaction, cutting out the platform altogether. In a talent-matching marketplace, candidates used the platform to discover job openings but applied directly on the company’s website.

Why Leakage Happens: Breaking It Down

Consumers’ Perspective

For consumers, platforms serve primarily as a discovery tool. They search, compare, and connect with service providers, always looking for the best combination of price and quality. Once they've found a provider they trust, many will bypass the platform for future transactions, particularly for recurring services.

This behavior is tied to their focus on value and convenience. According to a 2019 PwC survey, 86% of buyers are willing to pay more for a better customer experience, and 73% say good customer experience is crucial in their decision-making process. While consumers are willing to pay a premium for quality service, they are also driven by efficiency and direct relationships with providers. If consumers believe that engaging directly with a provider results in a more personalized experience or greater convenience, they will likely bypass the platform—even if they initially discovered the provider through it.

In short, consumers aren't loyal to the platform; they are loyal to the value they receive. Once they perceive they can get better service or a more efficient process directly from the provider, they won’t hesitate to circumvent the platform, leading to leakage.

Service Providers’ Perspective

Providers, on the other hand, care about much more than just transactions. They are concerned with getting paid on time, managing customers, and promoting their services. They value tools that help them manage scheduling, finances, and customer databases efficiently. However, the more commission platforms charge, the more tempting it becomes for providers to move business off-platform and avoid those fees. A 2020 McKinsey report noted that service providers rank reliable payments and user-friendly tools as two of their top priorities when using platforms.

Exploring Business Models: What’s the Right Fit?

To understand leakage, it’s essential to first grasp the different business models used in B2B2C platforms. The platform’s financial structure plays a pivotal role in determining whether leakage is likely to occur.

1. Transactional Commission Model

In this model, providers and consumers use the platform for free, and the platform only makes money when a transaction is completed. This is the default model for many platforms like Uber, Booking.com, and Upwork. It’s ideal for new market entries or platforms with limited inventory.

2. SaaS (Software as a Service) Model – Single Provider

This model works well when the platform is owned by a single service provider who sells directly to consumers, with customers paying a subscription fee. Netflix and Wix use this model.

3. SaaS – Aggregating Providers

The platform owner is responsible for all providers and pays them directly while selling subscriptions to consumers. This works well for fitness and wellness platforms like ClassPass, which aggregates multiple fitness instructors and classes under one subscription.

4. Combination of SaaS and Transactional Commission

Platforms that successfully combine both subscription fees and transactional commissions offer flexibility to users while ensuring a steady revenue stream. These platforms cater to various user needs by offering premium features, loyalty programs, or faster services through subscriptions, alongside their pay-as-you-go model.

Examples include:

• Amazon Prime: While users can make individual purchases on Amazon, Prime subscribers enjoy additional benefits like free two-day shipping, access to Prime Video, and exclusive deals. This combination of subscription (SaaS) and individual transactions (commissions) keeps users within the platform ecosystem by making it more convenient and cost-effective to stay than to leave.
• Moovit: A transit app that provides real-time updates for public transport. While basic services are free, users can subscribe for premium features like advanced route planning, ad-free experiences, and additional services such as bike or scooter rentals, which involve transaction fees.
• Pango: A parking app that combines a subscription for premium services like quick parking reservations and additional services like vehicle maintenance or car washes. While users pay for each parking session, subscribing to Pango’s premium features gives them faster access and exclusive benefits, making it hard for them to switch to another provider.

By combining SaaS and transactional commission models, these platforms create customer stickiness. Users who subscribe feel more committed to using the platform for both individual transactions and recurring services.

Preventing Leakage: Strategies for Success

Once we understand why leakage occurs, the next step is to explore how to prevent it. How can platforms increase customer loyalty, create stickiness, and prevent consumers and providers from cutting them out of the loop?

1. User-Friendly Interface

A smooth onboarding process with an intuitive, easy-to-use interface is critical. A Shopify study found that over 35% of users prioritize user-friendliness and a mobile-friendly experience when making purchasing decisions.

2. All-in-One Solution

Offer all relevant modules (CRM, scheduling, payment processing) within the platform. If users have to switch platforms for specific tasks like payments, they’re likely to leave. Integrating everything into one seamless platform prevents fragmentation and keeps users loyal.

3. Bundled Services

Bundling services is an effective strategy for platforms to enhance user loyalty and prevent leakage. When users find value in multiple services under one roof, it becomes inconvenient for them to leave. Bundling adds convenience and a sense of exclusivity, ensuring customers stick around longer.

A good example of effective bundling is Peloton: ?Initially known for its stationary bikes, Peloton has expanded into a subscription service that bundles live fitness classes, on-demand workouts, and integration with its hardware products. Subscribers not only benefit from workout videos but also get access to community features, health metrics, and music playlists, creating an ecosystem that keeps users loyal.

The Importance of Bundling

Bundling services is key for platforms to prevent leakage because it creates value aggregation—the more services or features a user gets under one roof, the harder it is for them to leave and seek alternatives. This approach offers convenience, cost savings, and increased reliance on the platform, all of which drive long-term customer loyalty.

Bundling also allows platforms to differentiate themselves from competitors. Instead of offering just one product or service, a platform can become a one-stop shop for users, making it less appealing to switch or bypass the platform for direct engagement with service providers.

Summary: Solving the Leakage Problem

Leakage is an inevitable challenge for B2B2C platforms, but it is not without solutions. To combat leakage, platforms need to prioritize a seamless user experience, offer all-inclusive services, and adopt business models that promote long-term customer retention. By bundling services, integrating useful tools, and maintaining a hybrid SaaS model, platforms can keep both consumers and providers engaged—ensuring loyalty, increasing revenue, and building a stronger marketplace.

Since leakage is inevitable, research shows that zero leakage is nearly impossible. However, not all leakage is the same—there’s acceptable leakage, and then there’s the "uh-oh" kind that needs immediate fixing. Here’s a handy rule of thumb to analyze your platform's leakage:

• 0-5% Leakage: Practically unheard of! If you manage this, you’re a magician and deserve all the product marketing awards.
• 5%-15% Leakage: You’re doing product marketing right. This is the “goldilocks zone” of leakage. Pat yourself on the back.
• 15%-25% Leakage: Totally acceptable. You can probably leave things as they are without losing sleep.
• 25%-35% Leakage: Time for some improvements, but nothing to panic over—yet.
• 35%-45% Leakage: Red alert! You need to focus on fixing this immediately.
• Above 50% Leakage: Oof, big problem. This isn’t leakage; it’s a flood. It’s time for a serious overhaul, pronto!

By understanding and tracking these leakage levels, platforms can ensure they remain in control, preventing minor leaks from turning into catastrophic floods. Ultimately, managing leakage is about finding balance, maintaining user trust, and keeping long-term growth on track.