The digital platforms that we use on an everyday basis, such as Google, Amazon, eBay, Uber, and Airbnb, are not as harmless as they may seem. They have significantly disrupted current business models, from closing traditional bookshops to changing the playing field in whole sectors of the economy, such as short-term rentals.
| What is the platform economy?
The term “platform economy” refers to economic activity facilitated by platforms, which are online structures that enable a variety of human activities. Platforms host services that allow consumers, entrepreneurs, businesses and the general public to connect, share resources or sell products. This makes them social and economic intermediators that are able to facilitate transactions. The rise of platforms has been aided by the wide use of smartphones that connect people through the Internet. The network-based platforms are the most powerful ones, and they actively use data provided by the users through the algorithms for data analysis, i.e. they use consumer data, specifically consumer preferences, to determine what gets served (Kenney, Bearson, Zysman 2019). The main types of the digital platforms are:
Algorithmic analysis and cloud computing are the basic technologies used in these platforms, leading to a radical transformation of “how we work, socialize, create value in the economy, and complete for the resulting profits” (Kenney, Zysman 2016). Just like factories during the industrial revolution, these platforms are transforming society, markets and firms: relationships between companies, job conditions and labor relationships are being reorganized, with some jobs disappearing as new ones are created. |
So far, there are no theories regarding the effects of these platforms on the economy, even though they have important implications for the way we organize work and the economy in general.
Pervasiveness: The presence of platforms in different fields of the economy is growing, and their role in shaping business is increasing (Kenney, Bearson, Zysman 2019). Platforms often grow to include other, related markets, as we can see with Amazon, which initially only sold books but then expanded to provide a variety of different products, or Booking, which was originally designed for booking hotels but now offers services for car, taxi, and airline reservations. In a recent study by Martin Kenney, Dafna Bearson and John Zysman, the 31 most important digital platforms were identified, and their effect on service-providing sectors was examined. The results show that these 31 platforms affect 82% of economic activity in the service sector and have a strong impact on the competition in their sectors: for example, clothing stores and book shops are closing because they cannot withstand the competition from Amazon, while taxi services are facing difficulties because of Uber’s growing presence. Moreover, the most successful platforms create ecosystems around them, which means that strongly linked and interdependent companies and services function around them.
Amazon is an excellent example of how a simple website became a platform and an ecosystem. It started with selling books and slowly expanded to include similar products. In the late 1990s, Amazon established a third-party program that allowed other websites to link to Amazon, and Amazon would receive a referral fee for any purchases. Later, it established an associate program with eBay, and another program with bricks and mortar shops that could open virtual shops on Amazon. All these programs created a system of interlinkages, making Amazon a very important player in the global market. Those who are not part of this system risk losing their competitive edge and market access, and so they are forced to join it.
Given the pervasiveness of the platform economy and its impact on global markets, it is crucial that we regulate it. However, it is very challenging to legislate new markets, with issues such as competition between platforms, their effect on the labor market, and intellectual property (Kenney, Zysman 2016). Policies on intellectual rights, labor policies and how to regulate the types of networks created by the platform economy should be adopted in Europe as well as abroad.
Reference list:
Bearson , Dafna, Martin Kenny, and John Zysman. “New Work and Value Creation in the Platfrom Economy: A Taxonomy and Preliminary Evidence ,” March 2019.
Kenney, Martin, and John Zysman. “The Rise of Platform Economy.” Issues in Sciense and Technology XXXII, no. 3 (2016).
Kenney, Martin, Dafna Bearson , and John Zysman. “The Platform Economy Matures: Pervasive Power, Private Regulation, and Dependent Enterpreneurs.” BRIE, November 2019.
“Towards an AI Economy That Works for All,” , A Report of the Keystone Research Center Future of Work Project sponsored by The Heinz Endowments, Authors: Stephen Herzenberg, John Alic 2019.
