Between Donors and Beneficiaries: A Conceptual Approach to Nonprofits Operating in Two-Sided Markets

The NPO sector has experienced some significant changes and growth in the last decade. Market failure theories explain why traditional NPOs exist but fail to account for the diversity and complexity we observe in the third sector today. This paper takes a first step in applying a two-sided market model to describe the evolution of that sector. It finds that “classic” purely donative NPOs may have once fulfilled the characteristics of a two-sided market featuring donors and beneficiaries linked by nonprofit intermediaries. However, the transition of the sector from donative to earned income-reliant requires an extension to the model of twosided markets to a less static approach. The demand and supply sides in the two-sided market model have become more complex. The paper therefore suggests a dynamic model, in which consumers and financiers of NPO products and services can move from one side of the platform to the other and take on different and at times overlapping roles.