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Ideas Made to Matter

Platforms

3 forces pushing on the platform economy

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Digital platforms are transforming the way companies do business, but the last few years have shown these platforms still have their own need to evolve. Today especially, digital platforms are navigating a changing landscape.

During the recent 2019 MIT Platform Strategy Summit, three experts shared their predictions, offered advice, and asked questions about the changing platform business model.

Regulation

With Facebook and Google in control of 84% of global spending on online ads (excluding China) and Amazon handling close to half of all e-commerce purchases, it’s no surprise that talk of regulating big tech and avoiding data monopolies are frequent topics of conversation.  

But Geoffrey Parker, a visiting scholar at MIT’s Initiative for the Digital Economy, pointed out that tech firms “don’t tend to fit the model of a traditional monopolist.” 

A traditional test of monopoly power measures, among other things, a company’s ability to fix prices and exclude competition. Tech firms, however, are “able to provide free products and services to one market because [they’re] able to capture profits or revenues from another market,” Parker said. The average Facebook user can scroll through the site’s social media feed for free because the company makes money on advertising and paid promotion from companies and organizations.

Potential solutions to the protections these network effects provide are emerging, Parker said. Aside from calls already being made to break up the companies, other ideas include:

  • New taxes on targeted ad revenue
  • Restricting the market where big tech companies can operate
  • Providing compensation to users for the data they provide
  • Data sharing like the European Union’s revised Payment Services Directive [PSD2], which encourages third-party innovation while also establishing stricter requirements for consumer data protection.

“I'm glad that we're starting to see a focus on the data instead of breaking the firms up,” said Parker. 

“The best path is to figure out ways to have data sharing and then how to track the value and then share the profits or the gains,” Parker said. “There's been a lot of innovation around things like watermarking and blockchain-types of technologies," to track data, "but they haven't really taken off. I think we're at the cusp of doing that.”

New technology

Technology’s rapid evolution hasn’t missed the platform economy.

Peter Evans, principal in the innovation and enterprise solutions group at KPMG, highlighted two technology areas in a state of change: artificial intelligence-as-a-service and 5G, the next-generation cellular network

“The question is, is what does the advent of a 5G world mean?” Evans asked. “Is it just incrementally more of the same, or does it open up completely new opportunities for platform development?”

Evans said 5G’s capacity and speed of transmission could open doors to technology like self-driving cars, smart meter monitoring, and robotic telesurgery.

Evans also said he’s seeing an emerging market for AI-as-a-service for platform strategies.“We now have some companies offering bot stores,” Evans said. “In the past, bots were typically built internally or you hired a consulting firm to build them for you. But now they begin to see across some firms there are consistent types of work activity” well-suited for bots, he said. “You can now go and buy bots and deploy them internally.”

Inversion and disruption

“Think of a platform as an inverted firm,” said Marshall Van Alstyne, a professor of information systems at Boston University’s Questrom School of Business. “The value creation is being done by the partners and the users rather than by the firm itself.” 

One example: The New York Times employs 3,700 people and is worth $6 billion. Twitter has 3,300 employees and is worth $25 billion. 

“The New York Times, one of the world's most famous papers, founded in the 1850s, [has] less than a quarter of the value of Twitter, where you and I create the content,” said Van Alstyne, adding that inversion creates massive disruption.

So is your industry going to invert? Van Alstyne offered a “transformation checklist” of markets that are ready or resistant to disruption.

Markets that are ready for transformation have:

  • A high proportion of value from information (news)
  • Precise, modular output (retail)
  • Few regulations (Twitter)
  • Spare capacity (empty passenger seats enabled Uber; spare rooms created Airbnb)
 

Markets resistant to transformation have:

  • A high proportion of value from physical assets (construction)
  • Highly complex products or services (airplanes)
  • Many regulations (nuclear power, health care devices like pacemakers)
  • High utilization (perishables, physicians)

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