Amazon, Uber and the Intangible Rise of Platform Economics

Given how fast events move in this economy, it is sometimes hard to tell whether form is following function, or the opposite - or if they are co-evolving. But it is apparent that platform economics is emerging as a significant explication of how value is being created now - and may do so in the foreseeable future.

What makes this development especially interesting is that it relies primarily on intangible factors like transparency, communication, reputation and the exchange of information, all of which contribute to the determination of success or failure. We have waited a long time for the technological devolution knowledge to become economic wisdom - and this may be its purest extract. To date. JL

Evgeny Morozov reports in The Guardian:

Instead of the conventional model, with individual firms competing for customers, we are witnessing the emergence of a new, seemingly flatter and more participatory model, whereby customers engage directly with each other.
Hardly a day goes by without some tech company proclaiming that it wants to reinvent itself as a platform. Back in March, when South Korea banned Uber, the company promised to let local taxi drivers use its platform – along with its matching services.
Facebook pulled a similar trick in early May: having run into trouble with its pseudo-humanitarian effort to provide free internet access via a project called internet.org, it, too, promised to turn it into a platform. Now, internet.org users, most of them in the developing world, could also enjoy free access to apps other than those developed by Facebook.
Some prominent critics even speak of “platform capitalism” – a broader transformation of how goods and services are produced, shared and delivered. Instead of the tired conventional model, with individual firms competing for customers, we are witnessing the emergence of a new, seemingly flatter and more participatory model, whereby customers engage directly with each other. With a smartphone in their pocket, individuals can suddenly do things that previously required an array of institutions.
Such is the transformation we are witnessing across many sectors of the economy: taxi companies used to transport passengers, but Uber just connects drivers with passengers. Hotels used to offer hospitality services; Airbnb just connects hosts with guests. And this list goes on: even Amazon connects booksellers with buyers of used books.

ADVERTISING

 

 

The differences from the old, pre-platform model are easy to spot. First, these companies have extraordinary valuations but suspiciously light balance sheets: Uber doesn’t need to employ drivers and Airbnb doesn’t need to own houses. Second, instead of adhering to a precise and rigorous code that spells out the rights of customers and the obligations of service providers – the cornerstone of the modern regulatory state – platform operators rely on the widely distributed knowledge of participants in a service, hoping that the market will eventually punish those who misbehave.

In the free-market utopia of thinkers such as Friedrich Hayek – the true patron saint of the sharing economy – your reputation would also reflect what other market participants know about you. Thus, if you are a nasty customer or an ill-mannered driver, everybody else will soon discover this, and specific laws to police your behaviour are rendered unnecessary.
The good news, according to Hayek, is that once our norms change – what was considered nasty 50 years ago might be perfectly acceptable today – our reputations would reflect these changes immediately. Laws, on the other hand, would take quite some time to be altered.
In reality, though, such a perfectly liquid and dynamic reputation marketplace is nowhere to be seen. A recent lawsuit in the US highlights its absence. Uber drivers have been accused of discriminating against disabled people by refusing to put their wheelchairs in the boot of their car. One would think that anti-discrimination laws that apply to taxis would also apply to Uber. Uber says it has anti-discrimination policies – and that it’s not a taxi company, it’s a technology company, a platform. Here, there is clearly no easy feedback mechanism to assist disabled travellers: this is what consumer protection laws are for.
While Uber uses its platform status as a shield against lawsuits, Facebook uses it as a publicity gimmick. Thus, it has recently argued that “internet.org” is an “open platform”. In reality, though, it’s anything but open: Facebook still decides what apps to accept and what conditions they should meet (no video or file transfer, high-resolution photos).
In a culture infatuated with innovation – and ours is definitely one – Facebook’s embracing of the platform rhetoric makes sense. The critics of internet.org could be right about the project’s deviations from the ideals of net neutrality but, in the long run, Facebook would like us to believe that it doesn’t really matter: a platform, at least in theory, is a place where unplanned and unpredictable innovation happens – and what more could we want? In a battle between justice and innovation, the latter invariably wins.
But Uber’s offer to drivers in Seoul does raise some genuinely interesting questions. What is it that Uber’s platform offers that traditional cabs can’t get elsewhere? It’s mostly three things: payment infrastructure to make transactions smoother; identity infrastructure to screen out any unwanted passengers; and sensor infrastructure, present on our smartphones, which traces the location of the car and the customer in real time. This list has hardly anything to do with transport; they are the kind of peripheral activity that traditional taxi companies have always ignored.
However, with the transition to knowledge-based economy, these peripherals are no longer really peripherals – they are at the very centre of service provision. Today, any service provider, and even content provider, risks becoming hostage to the platform operator, which, by aggregating all those peripherals and streamlining the experience of using them, suddenly moves from the periphery to the centre.There’s a good reason why so many platforms are based in Silicon Valley: the main peripherals today are data, algorithms and server power. And this explains why so many renowned publishers would team up with Facebook to have their stories published there in a new feature called Instant Articles. Most of them simply do not have the know-how and the infrastructure to be as nimble, resourceful and impressive as Facebook when it comes to presenting the right articles to the right people at the right time – and doing it faster than any other platform.
Few industries could remain unaffected by the platform fever. The unspoken truth, though, is that most of the current big-name platforms are monopolies, riding on the network effects of operating a service that becomes more valuable as more people join it. This is why they can muster so much power; Amazon is in constant power struggles with publishers – but there is no second Amazon they can turn to.
Venture capitalists such as Peter Thiel want us to believe that this monopoly status is a feature, not a bug: if these companies weren’t monopolies, they would never have so much cash to spend on innovation.
This, however, still doesn’t address the question of just how much power we should surrender to these companies. A publishing industry ruled by Amazon and Facebook might produce lots of innovations – but is there any guarantee that it would actually produce any significant articles or books?
One sure way to keep the platforms in check is to prevent them from appropriating all the adjacent peripherals. Making sure that we can move our reputation – as well as our browsing history and a map of our social connections – between platforms would be a good start. It’s also important to treat other, more technical parts of the emerging platform landscape – from services that can verify our identity to new payment systems to geolocational sensors – as actual infrastructure (and thus ensuring that everybody can access it on the same, nondiscriminatory terms) is also badly needed.
Most platforms are parasitic: feeding off existing social and economic relations. They don’t produce anything on their own – they only rearrange bits and pieces developed by someone else. Given the enormous – and mostly untaxed – profits made by such corporations, the world of “platform capitalism”, for all its heady rhetoric, is not so different from its predecessor. The only thing that’s changed is who pockets the money.