Platform Revolution: How Networked Markets Are Transforming the Economy―and How to Make Them Work for You
Platform Revolution: Summary and Review
Keywords: Change, Disruption, Interaction, Metrics, Platform, Regulation, Scale, Transactions, Users, Value
Please Note: There are links to other reviews, summaries and resources at the end of this post.
A platform is a business that connects people through technology, making an ecosystem that allows value to be created and exchanged. Platforms can host several different kinds of users, like how Amazon has both sellers and buyers, or they can have one primary type of user, like Facebook’s community of users who interact with each other socially. The significant thing that both of these sites, as well as all other platforms, have in common is that they bring people and organizations together in one place where they can interact with one another. Platforms match users for financial or social transactions, which creates value.
Platforms multiply profit because they benefit from network effects, which can help the value of a network to grow exponentially. As individuals join, the potential number of connections between individuals skyrockets algorithmically, making the network more valuable.
The authors include specific advice and recommendations about platform architecture, stressing that design should always start with a core interaction which defines the heart of the enterprise. There are suggested strategies for overcoming all sorts of issues, including the classic chicken-and-egg problems of how to attract users to a new platform when there aren’t yet many others to interact with. The disruptive power of platforms is analyzed, as well as the important issues of monetization, openness, governance, metrics, strategy and policy.
There is quite a bit here of value. The information provided is a good introduction to an important topic. There is no doubt that the platform revolution is changing our world. We have an opportunity right now to make decisions about platforms that will affect our future. Platform Revolution is a useful resource that can help guide us through those decisions.
Chapter 1: Today: Welcome to the Platform Revolution
Airbnb has disrupted the hospitality industry. Uber has disrupted the taxi business. Facebook is a huge media company that doesn’t produce any content. New upstarts have conquered whole industries and revolutionized the way business is done. This is possible because of a new business model, to wit — the platform. Platform businesses are changing the world.
Platforms are businesses that match users to each other in order to make financial or social transactions that create value. Value arises from the community the platform serves.
Platforms are transformative and capable of producing impressive results.
All information centric businesses can participate in the platform revolution. The platform revolution is huge and growing. Traditional business practices are being overturned. Pipelines are the old style of business, wherein a company designs and makes a product or service and ultimately selling it to the customer. The producers are on one end of the pipeline and the customers are on the other end.
Platforms are the new way. With this model, the platform provides resources for a variety of producers and consumers can interact and transact with each other. Instead of moving in a straight line from produce to consumer, value can move throughout the platform in a variety of ways.
Because platforms don’t own the resources that create value, they can grow much faster than pipeline businesses. Platforms also scale better. Growth isn’t tied to resources, so it can occur faster. Platforms bring new supplies to market because users are always coming up with new things.
There are still plenty of pipeline companies still around today, but whenever they have to compete against a platform business, they lose.
Platforms invert the firm, which is to say that many of the processes that take place inside pipeline companies are external in platform companies.
Platform businesses are ascendant. They’re taking over many markets and transforming the economy. Platforms continue to evolve. Many platforms serve more than one purpose. New platform companies are founded every day. There is a wide variety of different kinds of platform companies, from gaming platforms like Xbox and Nintendo, to retail platforms like Amazon and Alibaba.
Traditional business strategies and practices have been thrown into a state of turmoil. The world of business is in a state of major change because of the rise of the platform. This process is continuing without any signs of slowing down, making it certain that even more changes will be coming down the road.
Platform expertise is critical for today’s business manager, but most managers know little about this developing business model. They need guidance, the sort that a book like this can provide.
Chapter 2: Network Effects: the Power of the Platform
Supply used to determine scale. The more widgets ACME had to sell, the greater the profit. Nowadays, in many cases scale is a result of demand. Networks have changed the dynamic. The size of the network has become the determining factor of scale.
With network effects, the value of networks grow exponentially. As individuals join, the potential number of connections between individuals’ skyrockets, making the network more valuable.
Platforms typically enjoy two-sided network effects. The two sides required for interaction attract each other; for example, on a site with buyers and sellers, the presence of buyers attracts sellers, and the presence of sellers attracts buyers. Network effects can come from and affect both sides of a network.
People confuse network effects from other growth building tools, but they are actually different things. It isn’t price effect (from crazy low prices), and it isn’t brand effect (from high cred companies). Neither is it virality, which is when people external to the platform are pulled in.
Network effects are the result of increasing value for those who are already on the platform, and they increase with the scale of the platform. For this reason, it’s vital to increase size as quickly as possible. There are some handy tools that can help a platform scale up quickly. Unfortunately, networks can also have negative effects besides the positive effects that we treasure so much. Here’s a quick roundup of a few of these concepts:
- Frictionless entry makes it possible for users to quickly and easily join a platform and immediately participate in the creation of value.
- Side-switching platforms allow users to switch roles. For example, consumers can become producers.
- Beware of negative network effects. If there are lots of users, it can overwhelm the system, so it’s hard to find the best matches. To fix this, frictionless entry has to be balanced with curation.
- There are positive same-side effects, which are good effects that increase on one side. For example, the more people on Facebook, the more people with whom the user has to share.
- Negative same-side effects. For example, an increase in users can increase competition.
- Positive cross-side effects. When there are more vendors, consumers have greater choice. When there are more consumers, the venders make more money.
- Negative cross-side effects. For example, too much choice, too many ads, too much competition, etc.
Platform businesses are the most efficient value creators, compared to other types of businesses, because they harness the power of network effects.
Industries with network effects function differently than traditional businesses. The focus turns outside of the company. HR moves from employees to public. R&D no longer happens in-house; instead, users drive innovation.
Chapter 3: Architecture: Principles for Designing a Successful Platform
Deciding where to begin in platform design is difficult. Copying other companies doesn’t always work because platform businesses tend to be different from each other. Instead of trying to imitate another platform, the focus should be on the interaction. Platform design should always start with the core interaction. The core interaction has three components: participants, value unit and filter. After figuring out what the core interaction is to be, design the components in the above order.
Value units are usually generated by producers.
In every exchange, producers exchange three things: information, goods or services and currency. Information can include things like descriptions and process of products. Sometimes, the exchange of information is the central purpose of the platform; for example, like how Yelp provides information about restaurants. Once information is exchanged, participants might choose to go on to exchange goods and services. While on Amazon this could include products for purchase, on Facebook it includes photos and posts that are exchanged between participants. Finally, transactions are consummated with currency. While currency can include plain old fashioned Bitcoins or doubloons, many other forms of value can be counted as currency. For example, giving your friends the old thumbs up on Facebook is a form of social currency. Getting lots of views can be an important reward for people posting videos on YouTube. How well a platform can monetize the value it provides depends on the kinds of currency exchange it can capture.
Three of the most important functions of a platform are pull, facilitate and match. Pull attracts users to the platform. To facilitate transactions the platform provides tools and rules; this is the scaffolding of interactions. And platforms must match users to each other. The right consumers should find the right producers.
Additional interactions beyond the core interaction might be planned from the beginning, or they could be invented as the platform evolves. Be careful, though, as adding features increases complexity. This can be bad if users have trouble figuring out a site or if it gives programmers too much work.
The end-to-end principle: the more peripheral a feature is to the core mission, the more peripheral it should be on a platform. If only some users need it, then it shouldn’t be junking things up in a central location. This will make the system run more efficiently.
Modularity is a good quality for platforms. While it can be worthwhile to get a system up and running as quick as possible, the best way to build a platform is to do it piecemeal. Modules are designed separately, but they ultimately work together as a coordinated whole. Modules need to have the same design rules and standard interfaces. Systems can be re-architectured to be modular.
Always leave room for organic and spontaneous change. Look at how users are behaving; see if they’re putting the system to unexpected uses. This can suggest new directions for the platform to take.
Chapter 4: Disruption: How Platforms Conquer and Transform Traditional Industries
Platforms are places where buyers and sellers can come together and transact business. It isn’t a business model. Platforms have been around for ages. Platforms include traditional marketplaces where goods, like produce, are sold.
The difference between the olden day’s platforms and nowadays’ platforms is that nowadays we have digital technology. We can communicate all over the planet. We can complete transactions almost instantly. The internet turbocharges existing platforms like the New York Stock Exchange. It has revolutionized one commercial arena after another.
Platforms are totally disruptive when they get involved with an industry. For example, Uber has driven down the value of New York taxi medallions.
Platforms eat pipelines. Platforms are so much more efficient than pipelines that they eat the competition. For example, the internet has largely replaced newspapers as the main source of news for many people. News organizations don’t have to pay for paper, printing, distribution and countless other expenses when they publish online. An efficient method of dispersing the news “ate” a less efficient pipeline.
The internet provides infrastructure and coordinates communication. Platforms make use of these features for transactions all over the planet. There are several reasons for this. The internet can reduce costs, as it did in the news industry. Platforms are more efficient than pipelines. They can scale rapidly. They benefit from network effect. These things give them the economic edge over pipelines. They can grow faster than traditional businesses.
Platforms find new sources of supply. They make it easier for producers to participate, it’s easier to get their products into the value chain. For example, Airbnb makes it possible for hosts to rent out their spare rooms to travelers. Many of these hosts never would have even considered renting part of their home to strangers, nor would they have the tools to do so, had Airbnb not made it convenient for them to do so.
Platforms enable new forms of consumer behavior. People will gladly jump into a stranger’s car when they use Uber. It wasn’t too long ago that such behavior would have been considered crazy dangerous. Platforms enable this because they have built-in mechanisms to engender trust between users.
Platforms change quality control into user driven curation. Users gravitate towards higher quality goods, edging out the less desirable products.
There are three different kinds of platform disruption:
- Separating assets from value. Ownership of assets like equipment should be separated from value. For example, pooling the use of a MRI machine means everyone can use it without having to buy their own.
- Re-intermediation. There are new kinds of middlemen. For example, executives in the music industry used to rely primarily on agents in order to find new talent. Now they’re just as likely to trawl YouTube in search of good acts.
- Market aggregation. Markets combine and become centralized. For example, Alibaba has created a single platform for wholesalers all over the world.
All is not lost for existing pipeline companies. They can restructure themselves to take advantage of platform economies. This isn’t a simple thing to do, as it involves overhauling the entire operation, but it can put an existing business on equal footing with their platform competitors, so it’s well worth the effort.
Chapter 5: Launch: Chicken or Egg? Eight Ways to Launch a Successful Platform
The chicken-and-egg problem affects every platform at startup. How do you attract both sides to a platform when no one is on it? Buyers want sellers, and sellers want buyers, before either side is willing to sign on to a new platform. What to do? There are several different approaches to this conundrum:
- Bribe people with money or something else of value.
- User commitment. Get users to try the site. Just getting new people to sign up doesn’t do a lot by itself, they have to actually use the features.
- Push. There needs to be incentives for participating. Although common in the world of pipelines, traditional push strategies like advertising can still be helpful.
- In the world of platforms, pull strategies are more useful. Customers are pulled toward the platform with desirable features and incentives.
Existing large companies have an advantage of scale. Probably the reason they haven’t taken over the world yet is that they tend to be old companies with a culture of complacency. Once they enter the platform world there are already others with much more agility already playing the game.
Here are eight proven strategies that platforms have successfully leveraged for overcoming chicken-and-egg problems:
- Follow the rabbit. Set up a non-platform demonstration so people will know how cool your platform is.
- Piggyback. Recruit users from other platforms.
- Seeding. Create value that will appeal to at least some users. When these folks get on the platform, they’ll draw others in other roles. For example, producers draw consumers.
- The marquee strategy. Identify key users. Bribe them; treat them well.
- The single-side strategy. Create a business around products or services that benefit a single set of users. Later, convert the business into a platform business by attracting a second set of users who want to engage in interactions with the first group.
- Producer evangelism. Design your platform to attract producers; their customers will become users.
- Big bang adoption. Use traditional push marketing to create a big splash that draws attention to the platform — for example, the way that Twitter was introduced at SXSW.
- The micro-market strategy. Target a tiny, existing market. Effective matches can be made even at the very beginning.
Viral growth is a pull process. Create an environment where users tell new people about the platform. Viral growth depends on the user to be the sender. The sender shares a value unit. Allow the value unit to spread to existing networks. Then there has to be an actual recipient to receive the value unit. Viral growth can accelerate the platform’s expansion at an extremely rapid rate. Facebook is an example of a platform where users draw in more users through viral growth.
Chapter 6: Monetization: Capturing the Value Created by Network Effects
Charging discourages users, but a business has to make money. When it’s time to monetize, it’s important not to alienate the users. There are some useful techniques that can help. For example, don’t charge people for listing ads; charge them when the deal is done.
A partially free model can help grow the network. For example, a site may have a basic free service but users have to pay for the full service.
Some platforms are free to some users but charge others. Which side to charge depends which side you’re trying to cultivate.
The interactions are more important than the number of participants in the value of a platform. But it’s not just about raw numbers. The quality of the interactions is important, too.
There are several suggested monetization methods:
- Charge a transaction fee. This way, people aren’t discouraged from joining the site to begin with. One problem with this is that naughty users can take the transaction offline to avoid fees. Networks need to up the value of staying in-house. Rating systems and feedback can be useful to producers, keeping them on the platform.
- Charge for access. For example, on employment websites recruiters usually pay to list jobs.
- Charge for enhanced access. LinkedIn is free to users, but they can pay a fee to see complete listings of the people who have looked them up. This strategy doesn’t usually hurt network effects, as we’re talking about people who are already in the network.
- Charge for enhanced curation. Offer high quality. People are more than happy to pay a premium to purchase the things they want if they can easily get exactly the thing they want.
Because platforms have users positioned at both sides of a transaction, there are several different approaches when it comes to deciding who to charge. One approach is to charge everyone. This tends to discourage participation, but it can work when you want to cultivate the sense of an elite user base. You can also charge one side and subsidize the other. This is especially useful when one side needs some incentive, and the other side really values their presence. This strategy is used by nightclubs that offer cheap or free drinks to women on “ladies’ night.” Women are drawn to the bar by the promise of cheap drinks, and men are drawn because women are present. Another approach is to charge full price to all but a few. Give free access to super-users and they’ll attract others. A similar approach is to charge full price to some and subsidize those who are price-sensitive.
There are caveats. Don’t be in too big of a rush to monetize. The transition must be handled delicately. Avoid charging for things that used to be free. Don’t reduce access that users were used to getting.
It’s good to create new, additional value and charge for that. The best approach is to think about monetization when you initially design the platform.
Chapter 7: Openness: Defying What Platform Users and Partners Can and Cannot Do
Wikipedia is an open source reference platform that allows the public to contribute and edit content. Usually it’s a good source of reliable information. With controversial topics, however, people sometimes add incorrect, and sometimes even malicious, misinformation to articles. This highlights the difficulties platforms can have with openness.
To be open means to have no restrictions on development, commercialization or use. In another definition, it can mean that any restrictions — like rules and fees — are reasonable and nondiscriminatory.
Getting the right amount of openness is difficult, but important. Openness encourages innovation, but the more openness there is the harder it is to monetize and control a platform. Bad decisions in regards to the level of openness can doom a platform. Before Facebook was the dominant social network, Myspace ruled supreme. But Myspace was sort of buggy. They didn’t allow outside developers to work on the site’s features and the company didn’t have the resources to correct all the problems. Contrast this to Facebook. When they decided to open their site to apps created by outside developers, enthusiastic partners were quick to create a slew of interesting apps that made the users happy. There were so many developers working on any problems that arose, for the most part things got ironed out quickly. Facebook took off like a rocket while Myspace tanked.
It’s important to remember that users create value. The platform is host to the value that the users create. For this reason, limiting the roles of the users can also limit the value that is brought to the site.
There are three kinds of decisions about openness. Manager and sponsor participation, developer participation and user participation.
In manager and sponsor participation, the sponsors control the platform architecture, the manager controls interactions. Often these two roles are played by the same entity.
Developer participation has three different kinds of users. Core developers are usually employees. Extension developers add value to the platform, usually from outside the business. Platforms can encourage these developers by building application programming interfaces (API) and data aggregators, services that collect users and interactions to sell to a third party. If someone develops an app that could become a good platform on its own, the hosting platform should try to get control of it. With user participation, any user might have the ability to freely add content. The problems with this kind of participation includes the possibility of lower value content. It’s useful to find some way to curate the content.
In time, platforms frequently become more open as they evolve. Platforms should be regularly evaluated and the openness should be tinkered with.
It’s important not to give away the store. Core generators of value should be in the control of the platform. Extension apps should be evaluated for their potential to threaten the core business. Any app that has the potential to become a platform in its own right should either be bought by the company, or else they should seek to replace it by developing their own version in-house.
Functions that are popular with users should be acquired by the platform. Once they’re under the control of the platform, they should be made available to developers through open APIs.
It’s also important to control the level of openness for users. Websites can descend into cesspools of pornography and become the haunts of trolls. Some controls have to be in place for platforms that aspire to high quality content.
Chapter 8: Governance: Policies to Increase Value and Enhance Growth
Governance is all about creating good rules. A platform is composed of a community of users. Like all healthy communities, there need to be rules protecting the members of the community. The wrong kind of rules, however, can alienate users. To avoid this, platforms should observe three fundamental laws of good governance. First, rules should always create value for the customer. Second, those writing the rules shouldn’t use their power to change the rules in their favor. And finally, platforms should never take more than a fair share of the wealth.
The aim is to create wealth and to share it fairly with everyone who adds value. Think of platforms as states with their own laws. Countries with good governance are less corrupt and more economically successful than states with unfair or overly constrictive rules.
Completely free markets without any rules might sound like a good idea in theory, but they don’t always result in fair outcomes for everyone involved. In fact, they can produce market failure. Some basic economic examples of when things go wrong include information asymmetry, when one side knows something important about the transaction that the other does not; externality, with costs to those outside of the transaction; monopoly power; and risk. Reduce the chances of market failure through good governance.
Tools for governance include laws, or platform rules, and norms, the desirable behavior within a community. Architecture, or programming code, can be used to reinforce desired behavior and make unwanted behavior difficult to perform. And finally, markets, including not just financial monies but also social currency. Orderly markets reduce risk for the participants.
Internal transparency is important. Company departments shouldn’t become too siloed. The ability to see across units makes everyone more agile.
External and internal stakeholders need a voice in making decisions. No one wants to be part of a system where they have no control. Poor governance structure will lead users to seek out a competing platform in order to do their business.
Fair governance can foster wealth. People will trust you more if you are fair, and they’ll be more inclined to participate in innovation. Participants make better use of their resources in a just and fair system.
There will always be problems, of course. Resolving conflicts should favor the future over the past. Preferring the direction that the market is turning rather than hold on to procedures of the past will position a platform well for the future. Backwards looking rules can lead to stagnation for the company.
Self-governance is an important part of platform management. Well run platforms govern themselves following the principles of participation and transparency.
Platforms can be immensely complex. Some components, move and change quickly, while others are much more slow. Good governance systems are flexible enough to respond appropriately to both.
Chapter 9: Metrics: How Platform Managers Can Measure What Really Matters
The way to understand what’s going on with a system is through metrics. By measuring the right things, needs, performance and other aspects of the system can be assessed.
Platforms are a new business model that require new ways to keep track of what’s going on.
Platforms must track and manage a different set of metrics than the old pipelines did.
Platforms create value through network effects. Good metrics focus on positive network effects and the activities that can affect them.
Rate of interaction success is important. A high rate of successful interactions draws users.
The metrics one uses change over the lifecycle of the platform. In the beginning, during the startup phase, there is a lot of uncertainty. Look for information on core interactions and how producers and consumers benefit from the platform. The most important components to track are liquidity, matching and trust.
Liquidity means that there are some producers and consumers, and there is a high percentage of interactions. You can track liquidity by measuring the percentage of listings that lead to interactions. It’s also important to look at illiquidity, which happens when transactions aren’t possible. For example, when Uber users want a ride but there are no cars available. People get frustrated by these kinds of things and can become so discouraged that they leave the platform.
Liquidity is more nuanced than simple reports of how many people have visited a site. Companies that tout page visits or numbers of registered users might well be covering up deeper problems and should be regarded with suspicion.
Matching quality measures how well the search algorithms match users to make transactions. People want to find what they’re looking for. Search results shouldn’t bring up a bunch of noise that users must sift through. A good metric to measure this is the sales conversion rate — the percentage of searches leading to interactions.
Trust is essential. No one will risk money to buy something if they can’t trust the site to provide them with high quality information about the product and the transaction. Trust is built through careful curation.
Once a platform is past the ticklish startup phase, it should be in a state of growth. Here, the focus should be on metrics that measure that growth. The producer-to-consumer ratio determines if the market has balance among its users. Measure value creation. There are several suggestions for metrics to measure both sides of the market. One such metric is the interaction conversion rate, which compares the number of queries to the number of interactions.
During the maturity phase, metrics should drive innovation. Improvements to the product should be closely measured and tested against a baseline. Metrics also help identify threats from competitors and facilitate resource allocation.
Don’t feel like you have to measure everything. Be selective. You’ll need to be able to see the forest from the trees. Only track the things that you need. If you don’t understand why you’re tracking a particular statistic, you’re doing it wrong. Metrics should be actionable, accessible and auditable.
Chapter 10: Strategy: How Platforms Change Competition
The world of platforms has three levels of competition. Platforms compete with each other, they compete with their partners and partners on the platform compete with other partners.
But competition isn’t the whole story. Unlike pipeline companies, with platforms, competition is less important than cooperation and collaboration. Partners may represent potential competition, but they are more likely to add value to the platform than anything else. In such an environment, controlling relationships are more important than controlling resources.
There are different strategies that can be employed depending on the platform’s needs. Many platforms will find it is helpful to employ several different strategies at any given time.
When users go to a number of different sites to do similar kinds of transactions, it’s known as multi-homing. It’s better for the platform if it can keep all those tasty transactions at home on the platform. One way to accomplish this is to limit platform access. Platforms should try to get exclusive access to essential assets so users won’t want to go to other platforms.
It’s always a good strategy to foster innovation and capture its value. Keep a close watch on the apps that are developed for the platform. Absorb those apps that look like they might take off.
Use the immense value of data. Use data tactically. Test tools and features in order to optimize them. Strategic data analysis tracks who else is creating, controlling and siphoning off value both on and off platform. Analytics can help to increase value on the platform and reinforce network effects.
Mergers and acquisitions should have strategic goals. The target company should create value for a user base that overlaps with the one they’re already serving.
Watch for other platforms that have significant overlaps or similarities. Either become a partner with your competition, or else just offer a similar feature on your platform. Platform envelopment, successfully absorbing the functions of an adjacent platform, will help to absorb the adjacent platform’s users as well.
Enhanced platform design and continuous improvement is itself a strategy. Try to offer more, better. Users will prefer the platform that offers the best features.
Sometimes the advantage over competitors can be sustained over time. This generally happens when conditions favor winner-takes-all markets. Like immortals from the ’80s movie, The Highlander, eventually there will be only one. Or at the least, eventually there will be just a single dominant one. And like it was in the movie, competition is fierce among the contenders. Factors that encourage this process include supply economies of scale, strong network effects, high multi-homing costs and lack of specialization.
Chapter 11: Policy: How Platforms Should (and Should Not) Be Regulated
Regulations should be reevaluated everywhere because the whole game has been changed by platform businesses. Often enough, new economy businesses have just ignored existing regulations. This has brought a host of ethical problems.
Some say regulation is bad and it stifles innovation. Besides, it’s not always perfect. The free market should regulate things. When regulation gunks things up, it’s known as regulatory capture. Regulation can be used to rein in competitors. Some people really vilify regulation.
In fact, corruption increases the level of regulatory capture. Realistically, regulation provides important services to society and it probably would be bad to eliminate it. For example, regulating airlines makes air travel safe.
Access to some platforms is now part of the functioning of everyday life. As such, if people are excluded from these platforms it could draw regulatory attention.
Dominant platforms might resist change and innovation- after all it’s the status quo that gives them the edge. This does not serve the public good. People won’t have access to the improved technology.
There are numerous important regulatory issues. Sometimes companies engage in predatory pricing. They price themselves so low that their competition can’t possibly match their prices. After driving the competition out of business, they raise their prices super high. After all, they don’t have competition, they can charge what they like. This behavior is not looked on favorably by regulators, and it’s possible they’ll intervene. However, with platform economics, producers might well be able to offer their goods and services at or below cost without predatory intent. Even in situations without competition, they might set their prices below cost for some customers. This is a tricky issue, as there certainly is the potential for abuse. Regulators have started to change their requirements in order to account for network effects.
There is a tremendous amount of data that’s collected on people. There are lots of ways this can go wrong. People don’t seem to mind too much, however, as they freely provide it. Companies that trade in data own information about people, information that in other cases would belong to the individual people.
In the brave new world of IT, regulators must determine how to enforce laws in respect to international boundaries. Countries might think the best way to maintain control is to have platform data stored and processed locally. One form of regional control is seen with the European Union’s strict privacy laws. This has reduced some behaviors (especially in advertising), which has already affected EU economies.
Sales and value added taxes are different in every location. This makes compliance a challenge for retail platforms. Amazon has lobbied against these taxes, they’ve also been quick to take advantage of loopholes and have even engaged in what some may consider dodgy behavior. Local tax laws have become obsolete.
Labor platforms say workers are contractors, so labor laws don’t apply. This probably isn’t true, and besides, it makes the platforms look slimy to the public. Better regulation is likely to emerge in time.
Big time platforms like Amazon can rig the game. They can prefer some products more than others. They can manipulate the emotions of users. The potential for platforms to manipulate high stake activities, such as voting and political behavior is alarming.
There is huge temptation for platform managers to do unethical things. Rational regulation must be put in place to mitigate this. Use the data stream to identify offenders. This is a new day and we need a new way. We need regulation 2.0. Regulations should aim to minimize market inefficiencies- especially the abuse of dominant positions- and the failure to adapt to innovation.
Some people are anti-or low-regulation on principal. Regulation dampens innovation, they say. Give the new companies time to grow into their role; they shouldn’t have to worry about compliance in the first few years. But this will just encourage bad behavior.
The old rules don’t apply any more. New ones need to be written. We must make sure there are the kind of health and safety regulations that we need to make society function. At the same time, over regulation is to be avoided.
Chapter 12: Tomorrow: the Future of the Platform Revolution
There are many industries that will probably convert to platform industries in the coming years, these include information intensive industries, industries with non-scalable gatekeepers, highly fragmented industries and industries characterized by extreme information asymmetries.
Industries that are resistant to platform transformation include industries with high regulatory control, industries with high failure costs and resource intensive industries.
It’s possible to predict with some accuracy how some industries will change in the coming years. For your edification, here’s a list of some likely scenarios for how platforms are likely to affect different sectors of the economy:
- Education is quite vulnerable to platformization. People can learn online instead of attending a physical classroom.
- Healthcare is ripe for platformization. There is currently lots of fragmentation and friction. Inefficiencies can be reduced. But there are huge barriers to reforming this industry, however.
- Energy is another inefficient industry. People are working on smart grids in order to gather and make use of data on energy usage patterns. The industry is likely to change enormously over the next few years.
- Finance and money is sort of the ultimate platform business. Platforms have helped financial companies find new sources of value. Financial platforms tend to be conservative as regards to change. Will they learn to adapt? They are facing competition from new sources. Mobile phone companies have helped people without bank accounts in Africa with their money movement needs.
- Logistics and transportation industries. Platforms are the obvious tool for coordinating the movement of resources.
- Labor markets have seen boatloads of change due to platforms. They will continue to do so. As Adam Smith stated way back when, the unit of work will be broken down into smaller and smaller pieces.
- Government. There are many ways that governments can integrate the platform model into some of their tasks.
Platforms are not always an automatic good. The growth of contract work is an example of how platforms may be creating undesired change in society. Companies provide lots of benefits for their employees. If contract work becomes the norm, what are people supposed to do about it when they no longer have the security of being attached to a company?
Eventually everything will be connected and alive with information. The internet of things will create more networks. The future will bring challenges. Society has to have time to absorb change. New policies and regulations need to be ironed out. We should think about all this stuff now, while the technology is still emergent.
There’s always hyperbole, and there are always people who announce that everything has changed. In the case of platforms, anyway, it would seem they are right.