Platform economy

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The platform economy is economic and social activity facilitated by platforms. Such platforms are typically online matchmakers or technology frameworks. By far the most common type are "transaction platforms", also known as "digital matchmakers". Examples of transaction platforms include Amazon, Airbnb, Uber, and Baidu. A second type is the "innovation platform", which provides a common technology framework upon which others can build, such as the many independent developers who work on Microsoft's platform.

Forerunners to contemporary digital economic platforms can be found throughout history, especially in the second half of the 20th century. Yet it was only in the year 2000 that the "platform" metaphor started to be widely used to describe digital matchmakers and innovation platforms. Especially after the financial crisis of 2008, companies operating with the new "platform business model" have swiftly come to control an increasing share of the world's overall economic activity, sometimes by disrupting traditional business. Examples include the decline of BlackBerry and Nokia due to competition from platform companies, the closing down of Blockbuster due to competition from the Netflix platform, or the many other brick and mortar retailers that have closed in part due to competition from Amazon and other online retailers. In 2013, platform expert Marshall Van Alstyne observed that three of the top five companies in the world used the platform business model.[1] However, traditional businesses need not always be harmed by platforms; they can even benefit by creating their own or making use of existing third-party platforms. According to a 2016 survey by Accenture "81% of executives say platform-based business models will be core to their growth strategy within three years." In the year 2000 there were only a handful of large firms that could be described as platform companies. As of 2016, there were over 170 platform companies valued at US$1 billion or more. The creation and usage of digital platforms is also increasing in the government and NGO sectors.

The rise of platforms has been met by a mixed response from commentators. Many have been enthusiastic, arguing that platforms can improve productivity, reduce costs, reduce inefficiencies in existing markets, help create entirely new markets, provide flexibility and accessibility for workers, and be especially helpful for less developed countries. Arguments against platforms include that they may worsen technological unemployment, that they contribute to the replacement of traditional jobs with precarious forms of employment that have much less labour protection, that they can worsen declining tax revenues, and that excessive use of platforms can be psychologically damaging and corrosive to communities. Since the early 2010s, the platform economy has been the subject of many reviews by academic groups and NGOs, by national governments and by transnational organisations like the EU. Early reviews were generally against the imposition of heavy regulation for the platform economy. Since 2016, and especially in 2017, some jurisdictions began to take a more interventionist approach.

Platform Economy Visualization

Platform definition[edit]

The 'platform' metaphor has long been used in a variety of ways. In the context of platform economy, 21st-century usage of the word platform sometimes refers solely to online matchmakers – such as Uber, Airbnb, TaskRabbit etc. Academic work and some business books often use the term in a wider sense, to include non-digital matchmakers like a business park or a nightclub, and also to other entities whose function is not primarily to support transactions. Platform co-author Alex Moazed explains that “platforms don’t own the means of production, they create the means of connection.” [2] Platforms scholars Professor Carliss Y. Baldwin and Dr C. Jason Woodard have offered a generalised definition of economic platforms where the focus was on the technical side of the platform: "a set of stable components that support variety and evolvability in a system by constraining the linkages among the other components".[3] Woodard and Baldwin have stated that at a high level of abstraction, the architecture of all platforms is the same: a system partitioned into a set of core components with low variety and a complementary set of peripheral components with high variety.[3] Others define it based on the ecosystem perspective where the focus was on the actors around the platform ecosystem (e.g., buyers, sellers). For more discussion of definitions, see the paper Digital Platforms: A Review and Future Directions [4]

Multi-sided platforms[edit]

A multi-sided platform can be defined as any entity that facilitates the interaction between two (or more) sets of agents [5]. In the context of a transaction platform there are generally two sets of agents, on one side is the buyer, on the other side is the seller, and the platform is the entity which connects the two agents [5]. These platforms are used everywhere, and mostly by everyone, in the market. An example of a commonly used platform is Visa or Mastercard, which facilitates the transaction between the card holder (the buyer), and the store at which they are shopping (the seller). Another example is Snapchat or YouTube, which facilitate interactions between online advertisers and consumers. This scenario shows that not all interactions need be beneficial to both agents in order for the interaction to occur, as consumers are affected negatively by having to see the advertisement [6]. In the case of online advertising however, multi-sided platforms can create value by facilitating higher levels of exchange between agents through the reduction of transaction costs such as information and search costs [6]. An example of platforms that achieve this are Facebook and Google, which use algorithms to match advertisers with potential customers [5][6]. Another example of a platform that creates value by reducing costs for both buyers and sellers is shopping malls. For retailers they reduce duplication costs by providing parking and toilets, which the retailers then don’t have to provide themselves. For consumers shopping malls can reduce travel costs as all stores can be found in one place.

Network effects[edit]

Multi-sided platforms rely on network effects to stay competitive and profitable [7][5][6][8]. A Network effect refers to the gain in utility a user receives when an additional user adopts the platform [8]. Though multi-sided platforms often exhibit both direct and indirect network effects, they are mostly characterised by indirect network effects. When examining the organisation Uber Eats, it can be determined that the platform exhibits three indirect network externalities. The first is a membership externality, this means that the more restaurants that are available to choose from on the platform, the more valuable this platform is to the consumers [6]. Consequentially, the more consumers using the platform, the more valuable this platform is the restaurants. The second externality is a usage externality, which implies that both the restaurant and the consumer will benefit when the consumer orders through Uber Eats [6]. Thirdly, Uber Eats has a potential behavioural externality, meaning that individuals who act negatively towards Uber Eats drivers can have their account banned [6].

Critical mass[edit]

As discussed above, multi-sided platforms increase their value through networks effects, thus, the biggest issue faced by start-up platforms is attracting enough users on either side of the platform to return profits and remain profitable [6][8]. Platforms will attain the substantial profits when they reach critical mass. From a business perspective, critical mass is the achieved when the platform has enough users on either side that adopting this platform becomes a dominant strategy by economic agents [8]. Once a platform has attained critical mass it can benefit greatly from indirect network effects which increase profits and drive growth [8].

Competition[edit]

Once a platform reaches critical mass it is fair to assume that this platform might achieve a level of monopolistic power within the market place due to demand-side economies of scale, however, product differentiation is a strong contributor as to why the platform economy remains so competitive [6][7]. For example, the company LinkedIn specialises in matching individuals to more highly skilled areas of the job market, whereas the company Mediabistro will focus solely on matching individuals specifically towards media focused jobs. By having this differentiation, the efficiency of job matching platforms are increased [6][7].

The platform economy[edit]

In recent years the global market has undergone a metamorphosis with the introduction of the platform economy [7]. Also known as the digital platform or online platform economy, the platform economy is economic (the buying, selling and sharing of goods and services [9]) and social activity facilitated by platforms. Such activity is wider than just commercial transactions including, for example, online collaboration on projects such as Wikipedia. While the term "platform economy" is often used in a sense that encompasses only online platforms, this need not be the case, as, by definition, a platform can be any entity that creates value by facilitating transactions or exchanges between at least two agents [5][7].

Relationship with similar digital economy terms[edit]

"Platform economy" is one of a number of terms aiming to capture subsets of the overall economy which are now mediated by digital technology. The terms are used with diverse and sometimes overlapping meanings; some commentators use terms like "sharing economy" or "access economy" in such a broad sense they effectively mean the same thing. Other scholars and commentators do attempt to draw distinctions and use the various terms to delineate different parts of the wider digital economy. The term "platform economy" can be viewed as narrower in scope than "digital economy", but wider in scope than terms like "on demand economy", "sharing economy" or "gig economy". Several scholars have argued that "platform economy" is the preferable term for discussing several aspects of emergent digital phenomena in the early 21st century.[10] [11] [12] [13]

Digital economy[edit]

The term digital economy generally refers to all or nearly all economic activity relying on computers. As such it can be seen as having the widest scope; encompassing the platform economy, and also digital activities not mediated by actual platforms. For example, economic transactions completed solely by email, or exchanges over EDIs, some of which operate between only two companies so are too closed off to be considered platforms. Some scholars draw a distinction between platforms and earlier websites, excluding even sites such as Craigslist that are used to support economic transactions. Such sites can be considered outside the platform economy, not because they are too closed off, but as they are too open to be classed as platforms.[14][15]

On-demand economy[edit]

The terms "On-demand" or access economy are sometimes used in a broad sense, to include all activity from transaction platforms, and much else. Some commentators, however, assign the access economy a narrower definition, so that it excludes platforms in the sharing economy. Even when sharing and on-demand platforms are distinguished in this way however, they are still both included in the wider "platform economy".[16]

Sharing economy[edit]

The term sharing economy is also used with a wide range of scopes. According to Rachel Botsman, one of the prominent analysts of the sharing economy, the ‘sharing economy’ as a term has been incorrectly applied to ideas where there is just a model of matching supply with demand, but zero sharing and collaboration involved. There is a fundamental difference between platforms such as Deliveroo or DoorDash, which operate on the basis of meeting instant demand with a constant pool of labour, and platforms like BlaBlaCar or Airbnb, which are genuinely built on the sharing of underused assets. So, mere delivery may not qualify as a sharing economy, but it is a mobile-driven version of point-to-point delivery.[17] However, due to the positive connotations of the word "sharing", several platforms that don't involve sharing in the traditional sense of the word have still liked to define themselves as part of the sharing economy. Yet academic and some popular commentators define the sharing economy as only including activity that involves peer-to-peer transactions; in these narrow definitions most of the platform economy is outside of the sharing economy.[16][18] [19] [20]

Gig economy[edit]

The Gig economy refers to various forms of temporary work.[21] The phrase is sometimes used with a broad scope, to include traditional offline temporary and contract work; in that sense, parts of the gig economy are outside the platform economy. In the narrow sense of the phrase, the gig economy refers solely to work mediated by online labour market platforms, for example PeoplePerHour. In this narrow sense, an important sub division is between local and remote gig work. Local gigs require the worker to be present in person – as is the case for Uber or most TaskRabbit work. For remote work, also known as the "human cloud", tasks can be done anywhere in the world, as is generally the case with Mechanical Turk or the upwork platform. A 2017 study estimated that worldwide, about 70 million people have registered on the remote labour platforms.[22][15][23][24][13] The global gig economy, in 2018, generated $204 billion in gross volume (with vehicle for hire services comprising 58% of this value), while this number is expected to grow to $455 billion in 2023.[25] Moreover, surveys yield that 5–9 per cent of adult Internet users in various European countries are involved in working through such platforms weekly, while annual growth rate of the gig platform users is forecasted to be 26 per cent.[26] Previously the gig economy acted as a way for individuals to earn additional money by taking on some additional work. Many individuals today however rely on jobs in the gig economy as their primary source of income.[27]

The word 'gig' in the term 'gig economy' is suggestive of short-term arrangements typical of a musical event. [28] 'Gig' suggests an arrangement similar to musicians being booked for a gig at a particular venue.[29] Such bookings typically have a specified time and won't be long term. As a result, there is no guarantee of repeat bookings, and sometimes no defined method of payment. Parallels exist between etymological meaning of the term related to the musicians’ tasks and the gig economy. For example, gig jobs are classified as contingent work arrangements (in the US-context) rather than full-time or even hourly wage positions.[30] Tasks in the gig economy have been characterized as short, temporary, precarious, and unpredictable. They can also increase accessibility, geographic, and social inclusion in the labour markets, and provide workers with a sense of autonomy.[28]

Over the last few years, the number of people doing gig work worldwide has increased dramatically as the proportion of full-time and part-time workers is declining, with the gig economy still showing consistent growth trends. [27] Reasons for the expansion of the gig economy is most notably attributable to the evolution in technology and the broadening availability of the internet around the world. Due to these technological advancements, employers now have access to a worldwide labour market, and can hire people anywhere in the world to perform a job and communicate with them via telecommunication [27]. Trends have also shown that professional service firms are moving towards platform business models and away from vertically integrated models, allowing freelance workers to interact directly with clients in lieu of having the firm’s employees manage them all [5]. In the United States, an estimated 36% of workers are actively participating in the gig economy, which contributes to some or all of their income, 44% of these workers say that their work in the gig economy is their primary source of income, with this percentage increasing to 53% for workers aged between 18-34, additionally, in the United States it is estimated that 33% of organisations employ gig workers consistently for projects. [27] As of 2020, surveys show that on a global scale approximately 40% of executives expect that independent contractors and freelance workers will occupy much of their organisation’s workforce within the next 5 years as they provide many hard-to-find skills and diversify the organisations talent pool. [27]

The benefits and attraction of the gig economy are as follows: gig workers can choose who they work for, can choose what kind of work they do, can set their own hours to fit into their schedule (sometimes allowing for them to juggle multiple jobs), get paid on a per project basis, can sometimes choose how much they charge (depending on the job), and due to technological advancements independent contractors have access to job markets worldwide. [5][27] The cons of the gig economy are that there is more competition, due to firms having access to other independent contractors on a global scale. The gig economy also forces more responsibility on the gig worker, for example, a freelance worker would not receive benefits from an organisation that a traditional employee would, this includes things such as sick pay, in addition to this, someone working in the gig economy would also be responsible for managing his or her own retirement fund.  The long-term welfare of individuals within the gig economy (particularly those categorised in the unskilled labour market) is brought into question as freelance workers generally are in charge of managing their retirement funds and other areas such as healthcare. Surveys of Uber employees found that approximately 16% of Uber drivers worldwide have no health insurance. Reasons for this could be attributable to the fact that the average earnings for an Uber driver is $9.21 USD per hour. [5][27]

History[edit]

Pre Internet era[edit]

Businesses operating on some of the principles underpinning contemporary digital platforms have been in operation for millennia. For example, matchmakers who helped men and women find suitable marriage partners operated in China since at least 1100 BC.[31] Grain exchanges from ancient Greece have been compared to contemporary transactional platforms, as have medieval fairs.[31][32] [33] Examples of innovation platforms also predate the internet era. Such as geographic regions famous for particular types of production, institutions like Harvard Business School, or the Wintel technology platform that became prominent in the 1980s.[34][35]

Post Internet[edit]

The viability of large scale transaction platforms was vastly increased due to improvements in communication and connectedness brought about by the Internet.[36] Online market platforms such as Craigslist[note 1] and eBay were launched in the 1990s. Forerunners to modern social media and online collaboration platforms were also launched in the 1990s, [note 2] with more successful platforms such as Myspace and Wikipedia emerging in the early 2000s. After the financial crisis of 2007–08, new types of online platforms have risen to prominence, including asset-sharing platforms such as Airbnb, and labour market platforms such as TaskRabbit.

Scholarship and etymology[edit]

According to the OED, the word "platform" has been used since the 16th century, both in the concrete sense to refer to a raised surface, and as a metaphor. However, it was only in the 1990s that the concept of economic platforms began to receive significant attention from academics. In the early 90s, such work tended to focus on innovation or product platforms, defined in a broad sense that did not focus on online activity. Even as late as 1998, there was little focus on transaction platforms, and according to professors David S. Evans and Richard L. Schmalensee, the platform business model as it would be understood in the 21st century was not then recognised by scholars.[37][34][38]

The first academic paper to address the platform business model and its application to digital matchmakers is said to be Platform Competition in Two-Sided Markets by Jean-Charles Rochet and Jean Tirole. [note 3][39] An early management research book on platforms was Platform Leadership: How Intel, Microsoft and Cisco Drive Industry Innovation,[40] by Annabelle Gawer[41] and Michael Cusumano[42] (published in 2002).[43] One of the academics most responsible for connecting those working in the emerging field of platform scholarship was professor Annabelle Gawer; in 2008 she held the first international conference on platforms at London.[44]

The platform business model[edit]

The platform business model involves profiting from a platform that allows two or more groups of users to interact. The model predates the internet; for example, a newspapers with a classified ads section effectively uses the platform business model. The emergence of digital technology has "turbocharged" the model,[45] although it is by no means a sure path to success. While the most successful "born-social" firms can in just a few years achieve multibillion-dollar valuations, along with brand loyalty comparable to the largest traditional companies, most platform business start ups fail.[46][47] [48]

Some companies are dedicated to the platform business model; for example, many so-called born-social startups. Other companies can operate their own platform(s) yet still run much of their business on more traditional models. A third set of firms may not run their own platform, but still have a platform strategy for utilising third-party platforms. According to a 2016 survey by Accenture, "81% of executives say platform-based business models will be core to their growth strategy within three years." [49][47] According to research published by McKinsey in 2019, 84% of traditional firms either owned their own platform or utilised one operated by a third party, while for born digital firms, only 5% lacked a platform strategy. Mckinsey found that firms with a platform presence - either their own or via a third party - enjoyed on average an almost 1.4% higher annual EBIT growth.[50]

Some of the principles governing the operations of matchmaking platforms differ sharply when compared with traditional business models. The selling of products or services is central to most traditional businesses, whereas for transaction platforms, connecting different groups of users is the key focus. For example, a traditional mini cab company sells taxi services, whereas a platform company might connect drivers with passengers.[51] Another distinguishing feature of the platform business model is that it emphasises network effects, and the inter-dependence of demand between the different groups that use the platform. So with a platform business, it often makes sense to provide services free to one side of the platform, e.g. to the users of a social media service like Facebook. The cost of this subsidy is more than offset by the extra demand a large user base generates for the revenue generating side(s) of the platform (e.g. advertisers).[52]

According to authors Alex Moazed and Nicholas L. Johnson, BlackBerry Limited (formerly RIM) and Nokia lost massive market share to Apple and Google's Android in the early 2010s, as RIM and Nokia were acting as product companies in a world now best suited to platforms. As former Nokia CEO Stephen Elop wrote in 2011 "We’re not even fighting with the right weapons, ... The battle of devices has now become a war of ecosystems."[53][54]

The platform business model vs the pipeline business model[edit]

With the ever-improving technological advances that have occurred over the last decade, and the significant number of firms achieving financial success through platform business models such as Facebook, AirBnB, and Uber, platform business models have been growing in popularity as opposed to traditional pipeline business models, which are clamming to adapt to the new external environment and retain their competitive advantage. [7][55] A pipeline business model is a business that follows the value chain method and has its raw materials supplied to them from an upstream supplier and then transforms these goods into a finished product which is then sold to their customers. [55] An example of this is car manufacturers, who receive the raw materials to build the car then add value to these materials by assembling the vehicle which is sold to consumers.  A platform business model creates value by creating a network where the providers of goods can interact with consumers directly and participate with each other. Platforms consist of a list of rules that participants must follow to be on the platform. [55] The biggest difference between pipeline and platform businesses is that in a pipeline business the producers and consumers of goods have little to no interaction with each other, whereas in a platform business these two are in direct contact with one another. [55] Pipeline businesses conduct the high value activities themselves as a way of earning the highest amounts of profit and achieving competitive advantage for themselves. [5][55][7][6] Platform businesses set up infrastructures and rules which allow the providers of goods to perform the high value activities for the customers (e.g. Uber provides a platform for individuals to seek rides, the ride being the high value activity which the driver (the provider) is performing). [5][55][7][6] Organisations that have managed to adopt and integrate platform business models into their organisation however have been able to take full advantage of network effects to grow their influence and scale their business activities and reach. [7][55]

Platform startups[edit]

Platforms are difficult to start up as they need to find a way to encourage both buyers and sellers to engage with their platform. Platforms must also find a way to simultaneously coordinate buyers and sellers. In addition to this, some platforms have had to convince one or both parties to join prior to them being capable of facilitating interactions, for example, video game consoles such as Xbox must convince game developers to produce games for them prior to the console being available, likewise, consumers must also purchase the platform prior to the release of new games they wish to play. [5]

Pricing strategies[edit]

Platforms use varying pricing strategies to keep users engaged with the platform. Platforms will sometimes set prices to below the marginal cost for the side that is most sensitive to price changes, and will set prices to above the marginal cost for the other side, who effectively subsidise the opposite side of the platform. [6] An example of this in action is an entity called OpenTable who allow customers to book a reservation at a selection of restaurants online. OpenTable is free for consumers to use and even provides them with usage-based rewards which are subsidised by the restaurants who pay a fixed licensing fee as well as a usage fee to OpenTable every time a reservation is made with their restaurant through the platform. [6] Platforms can also charge two-part tariffs to both sides to earn revenue.[5] In the case of Xbox, the platform will charge royalties to game developers for each game sold. Consumers on the other hand must purchase these games from the platform’s store to play. Another common pricing strategy for platforms are membership fees. Membership fees are more common on platforms than cannot observe its user to user interaction, for example, dating sites/ apps. [5] Platforms can also charge dynamic prices. A recent platform that has had much success with this is Tinder. Tinder is free to download and use, however, Tinder charges subscription fees to users that grant the user access to more features. These prices are determined by a user’s age, gender, geographic location and sexuality. This is an intuitive strategy as it attracts users and builds its network through free access, then entices users to pay fees once they have joined by offering them extra benefits of using the platform.

Difficulties for new and established platforms[edit]

Platform leakage[edit]

Platforms may experience a problem where customers who, once they have met in a platform, then proceed to transact outside of the platform. [6]

Multi-homing[edit]

As a way to avoid incompatibility or exclusivity imposed by platforms users may begin multi-homing, which involves using more than one platform. Examples of these are retailers accepting multiple forms of payment such as Master Card, Visa, Paypal etc. Similarly, consumers may purchase multiple video game consoles to get around game exclusivity. [6][7]

Creating a digital platform[edit]

Many books covering the platform economy devote chapters to the challenges involved in creating platforms: both for new platform startups, and for traditional organisations wishing to adopt a platform strategy. Some books are even dedicated just to certain aspects of operating a platform, such as nurturing ecosystems.[56] The work involved in creating a platform can be broadly divided into elements relating to technical functionality and network effects; for many but not all platforms, a great deal of effort also needs to go into the cultivation of ecosystems.[57]

Technical functionality[edit]

Developing the core technical functionality can sometimes be unexpectedly cheap. Courtney Boyd Myers wrote in 2013 that a platform with the core functionality of Twitter could be developed almost for free. A person who already had a laptop could take a $160 Ruby on Rails course, spend about 10 hours writing the code, and then host the Twitter clone on a free Web hosting service. A service that would have a chance of attracting a good user base, however, would need to be developed to at least the level of being a Minimum viable product (MVP). An MVP requires development well beyond a core set of technical functionality, for example, it needs to have a well-polished user experience layer. Boyd Meyers reported estimates that to develop an MVP for a platform like Twitter, the cost could range from $50,000 to $250,000, whereas for a platform needing more complex functionality such as Uber, the cost could range from $1 to $1.5 million.[57] This was in 2013, considerably more has since been spent on technical development for the Uber platform. For other platforms, however, developing the needed technical functionality can be relatively easy. The more difficult task is to attract a large enough user base to ensure long term growth, in other words to create sufficient network effects.[58][57]

Network effects[edit]

Platforms tend to be a strong beneficiary of network effects; phenomena that can act to increase the value of a platform to all participants as more people join. Sometimes it makes sense for a platform to treat different sides of their network differently. For example, a trading platform relies on both buyers and sellers, and if there is say a shortage of buyers compared to the number of sellers, it might make sense for the platform operator to subsidize buyers, at least temporarily. Perhaps with free access or even with rewards for choosing to use the platform. Sometimes the benefits of network effects can be overestimated, such as with the so-called "grab all the eyeballs fallacy", where a large audience is attracted to a platform, but there proves to be no profitable way to monetise it.[59][60]

Ecosystems[edit]

In the context of digital platforms, ecosystems are collections of economic actors not controlled by the platform owner, yet who add value in ways that go beyond being a regular user. A common example is the community of independent developers who create applications for a platform, such as the many developers (both individuals and companies) that create apps for Facebook. With Microsoft, significant components of their ecosystem include not just developers, but computer and hardware peripheral manufactures, as well as maintenance and training providers.[61] A traditional company embarking on a platform strategy has a head start in creating an ecosystem if they already have a list of partners, alliances and/or resellers. A startup company looking to grow an ecosystem might expose elements of its platform via publicly available APIs. Another approach is to have an easily accessible partnership sign up facility, with the offer of free or subsidised benefits for partners.[62]

Platform owners usually attempt to promote and support all significant actors in their ecosystems, though sometimes there is a competitive relationship between the owner and some of the companies in their ecosystem, very occasionally even a hostile one.[63][47][62][64]

Typology[edit]

Scholars have acknowledged platforms are challenging to categorise, due to their variety.[10] A relatively common approach is to divide platforms into four types, based on the principle ways they add utility, rather than being concerned with which particular sectors they serve. These four types are transaction, innovation, integrated, and investment.[65] Other ways to categorize digital platforms are discussed in Digital Platforms: A Review and Future Directions [4]

Transaction platforms[edit]

Also known as two-sided markets, multisided markets, or digital match making firms, transaction platforms are by far the most common type of platform. These platforms often facilitate various forms of online buying and selling, for example, EBay connects sellers of goods directly with the buyer. Sometimes most or all transactions supported by the platform will be free of charge.[65] In the case of eBay, the platform charges the seller of the item a fee to have it advertised on the platform, whereas the buyer of the item can use the platform free of charge and with no addition transaction fees on purchase of goods.

Innovation platforms[edit]

Innovation platforms provide a technological foundation, often including a set of common standards, upon which an ecosystem of third parties can develop complementary products and services to resell to consumers and other businesses. Examples of platform companies include Microsoft and Intel.[65] Innovation platforms often stimulate ecosystem innovation.[66]

Integrated platforms[edit]

Integrated platforms combine features of both transaction and innovation platforms. Apple, Google, and Alibaba have been classified as integrated platforms. Several integrated platform companies operating multiple discreet platforms and could also be described as "platform conglomerates",[65] while some others are more integrated and derive synergies from combining innovation and transaction platforms.[67]

Investment platforms[edit]

Investment platforms are companies that might not themselves operate a major platform, but which act as holding vehicles for other platform companies, or which invest in multiple platform businesses. An example is PLAT, the world's first platform business exchange-traded fund, launched by WisdomTree in May 2019.[68][65]

Crowdfunding platforms[edit]

Crowdfunding is a form of investment platforms which connect individuals to available investors/ donators. [69] Crowdfunding platforms facilitate many types of funding avenues such as acquiring capital for start-up ventures, or simply seeking donations from willing individuals for any number of reasons, such as relief aid for overseas countries in the wake of a disaster, or asking for money to pay for otherwise unaffordable medical bills etc. The popularity of crowdfunding platforms has increased exponentially over the past few years. By the year 2015, crowdfunding platforms raised a global amount of $34.4 billion US dollars. [70][71] By 2025, global crowdfunding is estimated to grow by an amount of at least $28 billion USD, [71] with some forecasts predicting as much as $300 billion USD could be raised. [70]

There are 4 different types of crowd funding: [69]

1.      Debt-based: Where investors/ donators will receive interest repayments on their contributions towards the fund (e.g. FundedHere)

2.      Equity-based: Investors receive shares in exchange for their contributions (e.g CapBridge)

3.      Reward-based: Donators receive rewards in exchange for their contributions (e.g. Kickstarter)

4.      Donation-based: Donators provide a charitable donation, generally without any expected returns (e.g. GoFundMe). Some of these donations however can be tax deductable.

As with most multi-sided platforms, investment platforms charge transaction fees to cover costs and earn profit. GoFundMe charges a 2.9% fee on all donations along with a $0.30 transaction fee per donation as a way to earn profit.

Global distribution, international development, and geostrategy[edit]

Platforms are sometimes studied through the lens of their differing distributions and impact across the world's geographic regions. Some early work speculated that the rise of the platform economy could be a new means by which the United States could maintain its hegemony. While the largest platform companies by market capitalisation remain US-based, platforms based in India and Asia are fast catching up, and several authors writing in 2016 and later took the opposite view, speculating that the platform economy will help accelerate a shift of economic power towards Asia.[72] [73] [74]

Africa[edit]

An M-Pesa Agent in Tanzania. The M-Pesa platform provides a form of Financial inclusion for people without bank accounts. They can send and receive credit on cheap SMS mobile phones, then exchange the credit for cash or goods at numerous shops and kiosks, which are far more common than bank branches in much of Africa.

Numerous successful platforms have been launched in Africa, several of which have been home grown. In the early 2010s, there were reports by journalists, academics and development workers that Africa has been leading the world in some platform related technologies, such as by "leapfrogging" traditional fixed line internet applications and going straight to developing mobile apps. In the field of mobile money for example, it was the success of Kenya's M-Pesa that brought the technology to global attention. [note 4][75][76][77][78]

Similar systems have been introduced elsewhere in Africa, for example, m-Sente in Uganda. M-Pesa itself has expanded out of Africa to both Asia and Eastern Europe. The system allows people who only have cheap SMS capable mobile phones to send and receive money. This and similar platform services have been enthusiastically welcomed both by the end-users, and by development workers who have noted their life-enhancing effects. Ushahidi is another set of technologies developed in Africa and widely used on platforms to deliver various social benefits. While many platforms in Africa are accessible just by SMS, uptake of smartphones is also high, with the FT reporting in 2015 that mobile internet adoption is happening at double the global rate.[77] Compared to other regions, there may have been less negative effects caused by platforms in Africa, as there has been less legacy economic infrastructure to disrupt, which also has provided an opportunity to build new systems from "ground zero".[75] Though some legacy businesses have still been disrupted by the rise of platforms in Africa, with sometimes only the more productive firms being able to overcome barriers to adopting digital technologies.[76][79]

By 2017, some of the excitement concerning home grown platform technology and the wider Africa Rising narrative has cooled, in line with recent falls in commodity prices reducing the short-term economic prospects for much of the continent. Yet optimism remains that the continent is heading in the right direction. A global survey identified 176 platform companies with a valuation over one billion dollars, yet only one was based in Africa. This was Naspers, which is headquartered in Cape Town, a city that also hosts many other smaller platform companies. A survey focused on smaller platforms based in Africa found few are either wholly foreign or indigenously owned, with most being a mixture.[80][81][65] [82]

Asia[edit]

The 2016 global survey found that Asia was home to the largest number of platform companies having a market capitalisation over $930bn. Asia had 82 such companies,[note 5] though their combined market value was only $930bn, second to North America with market capitalization of $3,000bn. Much of Asia's platform companies are concentrated in hubs located in Bangalore and Hangzhou.[65] More specifically, according to the 2016 regional survey, China significantly accounted for 73% of market cap while Northeast Asia, India, and ASEAN had 22%, 4%, and 1% respectively.[83] Within China, homegrown platforms tend to dominate across the whole platform economy, with most of the big American platforms being banned. eBay is allowed to trade in China, but has a relatively small market share compared to Chinese eCommerce platforms and was eventually shut down in 2006.[84] In 2018, Tmall (Alibaba) took the majority proportion of e-commerce market share in China at 61.5%, followed by JD at 24.2%.[85] Outside of China, Asian-based platforms have been enjoying rapid growth in areas relating to eCommerce, but not so much in social media and search. Facebook, for example, is the most popular social media platform even in India, a country with several large homegrown platforms, while in Myanmar, the New York Times described Facebook as "so dominant that to many people it is the internet itself."[86] In 2016, Northeast Asia that consists of Japan and Korea had 17 platform companies with collective market capitalization of $244bn; the top five platform companies and their origin were Softbank (Tokyo, Japan), Yahoo Japan (Tokyo, Japan), Nintendo (Tokyo, Japan), Naver (Seongnam, South Korea), and Rakuten (Tokyo, Japan). India had less platform companies than Northeast Asia. There were 9 major platform companies with collective market capitalization of $39bn and the biggest platforms were two e-commerce companies Flipkart and Snapdeal. The smallest number of market share went to Southeast Asia that was home to three platform companies Garena (Singapore), Grab (Malaysia), and GO-JEK (Indonesia) that collectively had market capitalization of $7bn.[83]

Europe[edit]

Europe is home to a large number of platform companies, but most are quite small. In terms of platform companies that were valued over $1bn, Europe was found to have only 27 in the 2016 global survey. So far ahead of Africa and South America, but lagging well behind Asia and North America.[65]. Platform economy companies are joining together to shape policy as well as introduce rules for legitimate operators. Examples include Sharing Economy UK[87] and Plattformsföretagen[88] in Sweden.

However, as of 2020 the German and French governments with backing from the European Commission are now pushing the idea of GAIA-X[89], an integrated super-platform that would give the EU digital autonomy from the influence of large American and Chinese platform providers, sometimes described as an "Airbus for Cloud".

North America[edit]

Market capitalisation of platform companies grouped by region, based on 2015 data from the United Nations. The global tech landscape changes rapidly, and all comparative data here should be regarded as a historical snapshot.[90]

North America, in particular the United States, is home to the world's top 5 global platform companies – Google, Amazon, Apple, Facebook, and IBM. A 2016 global survey of all platform companies with a market cap over $1bn, found 44 such companies headquartered in the San Francisco Bay Area alone, with those companies having a total value of $2.2 trillion – 52% of the total worldwide value of such platform companies. Overall, the United States had 63 platform companies valued over $1bn, with Canada having one. While North America has less large platform companies than Asia, it is the clear leader in terms of overall market capitalisation, and in having platform companies with a global reach.[65]

South America[edit]

According to data from early 2016, only three home grown platform companies with a market capitalisation greater than $1bn had emerged in South America: these are MercadoLibre, Despegar.com, and B2W.[90] The continent is however home to many start up companies. In Brazil, the Portuguese language gives an advantage to home grown companies, with an especially active start up scene existing in São Paolo. Argentina has been the most successful in creating platforms used outside its own borders, with the countries relatively small home market encouraging a more global outlook from its start up platform companies.[91][92][90]

With a high proportion of workers already employed on an informal basis, the platform-based gig economy has not grown as fast in South America as elsewhere. Though from a progressive perspective, scholars such as Adam Fishwick have noted that Latin America's tradition of worker organised activism may have valuable lessons for workers elsewhere seeking ways to mitigate the sometimes adverse effects of platforms on their economic security.[93]

Platforms by ownership[edit]

Private sector[edit]

Most of the widely used platforms are owned by the private sector. In the 2016 GCE survey of platform companies valued over $1 billion, a total of 107 privately owned companies were found, versus 69 public companies (public in the sense of being private sector, but publicly traded ). While more numerous, the privately owned companies tended to be smaller, having a total market value of $300 billion, compared to $3,900 billion for the publicly traded companies.[65]

Public sector[edit]

Some digital platforms are run by multilateral institutions, by national governments, and by local municipal bodies.[94][79]

NGO[edit]

Over 90% of NGOs maintain a presence on the large privately owned social media platforms such as Facebook, with some also operating their own platforms.[95]

Platform cooperatism[edit]

Platform cooperatism involves mutually owned platforms, being run "bottom up" by the people involved. Sometimes these platforms can effectively be competing for business with the privately owned platforms. In other cases, platform cooperatism seeks to help ordinary people have their say about political questions of the day, possibly supporting interaction with local government.[96][97]

Assessment[edit]

Francesca Bria, an early critic of the large privately owned platforms, a proponent of platform cooperatism, and as of 2018, CTO for the city of Barcelona.[98] [97] [99]

With the increasing centrality of digital platforms to the global economy following the 2008 financial crisis, there was an intensification of interest in assessing their impact on society and the wider economy. Many hundreds of reviews have been carried out: some by individual scholars, others by groups of academics, some by think tanks bringing together folk from a range of backgrounds, and yet others overseen by governments and transnational organisations such as the EU. Many of these reviews focussed on the overall platform economy, others on narrower areas such as the gig economy or the psychological impact of social media platforms on individuals and communities.[10]

Much early assessment was highly positive, sometimes even taking a "utopian" view on the benefits of platforms.[10] It's been argued and to some extent demonstrated that platforms can enhance the supply of services, improve productivity, reduce costs (e.g. by disintermediation), reduce inefficiencies in existing markets, help create entirely new markets, increase flexibility, and labour market accessibility for workers, and be especially helpful for less developed countries. Both the IMF and World Bank for example have suggested that it's the countries and industries that are quickest to adopt new platform technologies that achieve the fastest and most sustainable growth.[100] [10] [79][101] [102][103]

Various arguments have been made against platforms. They include that platforms may contribute to technological unemployment. That they accelerate the replacement of traditional jobs with precarious forms of employment that have much less labour protection. That they may contribute to declining tax revenues. That excessive use of platforms can be psychologically damaging and corrosive to communities. That they can increase inequality. That they can reproduce patterns of racism. That platforms have a net negative impact on the environment.[98][10][104][105]

Post 2017 backlash[edit]

Until 2017, most mainstream assessments of the platform economy were largely positive about its benefits to wider society. There were some exceptions; a forthcoming techlash had been predicted by Adrian Wooldridge as far back as 2013.[106] Further hardening of attitudes towards platforms from some commentators and regulators had been detectable from at least early 2015.[107] There had been a few highly critical views, e.g. from Evgeny Morozov, who in 2015 described most platforms as "parasitic: feeding off existing social and economic relations".[51] Yet such negative assessments were rare, especially from prominent commentators who had the attention of policy makers. This began to change in 2017. Across the world, the larger privately owned platforms were subject to increasing questioning about their expanding role and responsibilities.[86][101][108]

In the US, the Financial Times reported a marked change of attitudes towards online platforms across the American political spectrum, triggered by their "sheer size and power".[109] Among U.S. Democrats, leaders of the large platform companies reportedly went from "heroes to pariahs" in just a few months.[110] There has also been growing hostility towards the large platform companies from some members of the American right. High-profile figures such as Steve Bannon and Richard Spencer have argued for the break up of the large tech companies, and more mainstream Republicans were reported to be running for the 2018 congressional elections on anti big-tech tickets.[111] [112]

2017 also saw increased critical attention towards the larger platforms from both European and Chinese regulators. In the case of China where several of the larger US owned platforms were already banned, the focus was on their biggest home grown platforms, with commentators expressing concerns that they have become too powerful.[113][114]

Much recent criticism focusses on major platforms being too big; too powerful; anti competitive; damaging to democracy, such as with the Russian meddling in the 2016 election; and bad for users mental health. In December 2017 Facebook itself admitted passive consumption of social media could be harmful to mental health, though said active engagement can be helpful. In February 2018, Unilever, one of the world's leading spenders on advertising, threatened to pull adverts from digital platforms if they "create division, foster hate or fail to protect children." [115][112][111][116] [117] [118]

Additional concerns have been raised due to the increasing role of AI. Some scientists argue that AI is a block-box and often lacks explainability. AI can operate as a black-box in which principles of conduct and end decisions may not have been predicted or perceived by the AI's creators, let alone users. Therefore, core operations carried out by AI in platforms can be criticized as biased and exploitative. The following threads of platform exploitation can be discerned: exploitation arising from relationship between algorithms and platform workers, from behavioural psychology tactics adapted to algorithmic management, and from information asymmetries enabling “soft” control.

Despite criticism from media figures and politicians, as of early 2018 the large privately owned platforms tended to remain "wildly popular" among ordinary consumers.[112][110][101] After leading US platform companies revealed high Q1 revenue growth in late April 2018, the Financial Times reported they are untouched by the backlash, in a "stunning demonstration of their platform power".[119] The techlash continued to gather momentum however.[120] In January 2019 "techlash" was chosen as the digital word of the year by the American Dialect Society. Yet despite ongoing high-profile criticism and legal actions, including CEOs of platform giants being grilled by legislatures on both sides of the Atlantic, the Daily Telegraph suggested in December 2019 that the techlash had largely failed to halt the growing power of platforms.[121] Further criticism of the big platform companies continued into 2020. In February Mark Zuckerberg himself repeated his view that the big platform companies need further regulation from the state.[122][123] By May 2020, as a result of the COVID-19 pandemic the techlash was reported to have been put on hold. Following the widespread introduction of lockdowns across the world, platforms had been credited as having helped keep economies running and society connected, with polls showing the popularity of platform companies among the public had increased. Yet some commentators, for example Naomi Klein, remain concerned about the still growing power of platforms.[124][125][126][127] Commentators are also looking at the issue of migration and the platform economy. Migrant workers make up a significant portion of those involved in the platform economy. While this offers them job opportunities, there are concerns that migrants can become stuck in low-paid jobs with little opportunity for promotion and without established social security safety nets.

Regulation[edit]

During their early years, digital platforms tended to enjoy light regulation, sometimes benefiting from measures intended to help fledgling internet companies. The "inherently border-crossing" nature of platforms has made it challenging to regulate them, even when a desire has been there.[47] Yet another difficulty has been lack of consensus about what exactly constitutes the platform economy.[128] Critics have argued existing law was not designed to deal with platform based companies. They expressed concern about elements such as safety and hygiene standards, taxes, compliance, crime, protection of rights and interests, and fair competition.[129]

With many large platforms concentrated in China or the U.S., two contrasting approaches to regulation emerged. In the U.S., platforms have largely been left to develop free of state regulation. In China, while large platform companies like Tencent or Baidu are privately owned and in theory have much more freedom than SOEs, they are still tightly controlled, and also protected by the state against foreign competition, at least in their home market.[130][47]

As of 2017, there had been talk of a "third way" being developed in Europe, less Laissez-faire than the approach in the U.S., but less restrictive than the approach in China. Possibilities for Co-regulation, where public regulators and the platform companies themselves cooperative to design and enforce regulation, are also being explored.[131] [128] [47] In March 2018, the EU published guidelines concerning the removal of illegal media from social media platforms, suggesting that if platform companies do not improve their self-regulation, new rules will come into effect at EU level before the end of the year.[132][133] The OECD is looking at regulating platform work,[134] while the European Commission has stated that with new forms of work must come modern and improved forms of protection, including for those working via online platforms. With this in mind, the European Commission is planning to launch a new initiative on improving the working conditions for platform workers.[135] In parallel with this, the European Commission has proposed a reform initiative for an EU minimum wage.[136] New and existing labour unions have begun to become increasingly involved in representing workers engaged in the labour market section of the platform economy. With remote platform work having created what is in effect a planetary labour market, an attempt to encourage suitable working conditions on a global scale is being undertaken by the Fairwork foundation. Fairwork are seeking to move towards mutually agreeable conditions with the co-operation of platform owners, workers, unions, and governments.[137][138]

See also[edit]

Notes[edit]

  1. ^ Some commentators on the platform economy draw a distinction between "web 1.0" sites such as Craigslist and modern platforms, but generally Craigslist is included as a platform.
  2. ^ For example Friends Reunited or Nupedia
  3. ^ While not published until 2003, the paper began circulating among academics in 2000. More recent academic work on platforms typically calls them 'multi-sided' rather than two sided, as some platforms have more than two distinct groups of users. See Evans(2016), Chap1.
  4. ^ It was Smart Communications that achieved the first launch of a formal mobile money system, which occurred in the Philippines in 2001, about 6 years before the launch of M-Pesa. But it wasn't until the success of mobile money in Africa that the technology received widespread global attention. There are unconfirmed reports that Africans invented mobile money independently, without knowing about the Philippines system.
  5. ^ 64 were in China, 8 in India and 5 in Japan. The other 5 Asian platforms were split across Australia, Malaysia, Singapore and South Korea.

Citations[edit]

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References[edit]