Platform Revolution: a review for policy makers
After startups and tech companies, it’s time for policy makers and legislators to learn about platforms and network effects.
While it has been two years since Platform Revolution came out, essentially an eternity in tech, many of the lessons distilled in it resonate truer than ever. So you may be wondering who should be reading this book and why? By now, most in the private sector , particularly tech companies, startups, and VCs firms, are fully aware of the power of network effects, and have been for a while.
But we tend to forget that another important group of people should also probably be taking an interest in platforms: policy makers. These new frameworks are not just disrupting business ethos and industries, but also society and democracy, which the state is tasked to protect. We live in exciting times, reminiscent of the American Wild West, everything is to be built or rather be rebuilt.
Policy makers have never had more important duties in the last fifty years than today, and it starts by understanding what the heck is going on.
What’s a platform? Hint: not a flat raised area
A Platform is a radically new type of business framework. To better understand it, it’s helpful to back up a bit and contrast them to its Fordist era ancestor, which is called a Pipeline in the book. A pipeline is type of a business described as being a ‘linear value chain’, the oldie but goodie we’ve all come to know and love. In practice, this translates in a firm creating a product or a service, which is then manufactured and sold by another, and finally bought by a customer.
On the other hand, I have to admit that giving a concise definition of a platform is still no easy task for me. Essentially, it is a sort of digital agora matching consumers and producers, engaging them in a variety of complex relationships in the process, which in turn creates value for everyone - producers, consumers, and the platform. Chances are, you’ve already interacted with plenty of platforms. Examples includes Facebook, Twitter, Airbnb, Uber, Apple, Kickstarter, Nintendo, Wikipedia, Youtube, Coursera, etc. In fact, since you’re reading this article on Medium, you’ve necessarily interacted with at least one platform, as Medium itself is just that. Right now, I’m the producer, feeding you my thoughts, and you’re the consumer, giving me your undivided attention.
Network effects: the growth machine gun
In the past, companies having already reached their optimal output had to resort to realising economies of scale to increase their profit margins, often leading to mergers and acquisitions, specialisation of activities, or vertical integration of the value chain. However, the book explains that platform businesses are able to scale much better and, crucially, much faster. Thanks to network effects, they are able to create value without having to buy or control their productive ressources. In turn, this allows platform businesses to disrupt entire industries by becoming unavoidable intermediaries between consumers and producers, effectively controlling consumer demand for certain product or services.
The phenomenal power of network effects is that they become exponentially present as the platform grows, and so does the value of the platform itself. The book argues that platform-generated network effects are usually two-sided, meaning that they are the product of two sides coming together. For instance, people use Uber because they know it has a lot of drivers, who will be there in mere minutes; drivers sign up to Uber, because they know that there are many people just waiting for them, therefore ensuring a continuous work. In the end, both parties use the Uber platform because of the value of its network, and as they do so, increase it further.
If you’re interested in a lengthy discussion of different types of network effects, check this.
Time for the sheriffs to step up
The book discusses at length ways of designing, launching, and monetising platforms, which, while not the focus this review, is highly thought-provoking, because entirely singular. It’s definitely worth checking out if you’re considering starting a business or making a digital product (which may also apply to the delivery of public services, see an interesting discussion on this issue here). As laid out at the beginning of this review, I’m mostly interested in discussing ways in which policy makers should approach a world in which platforms are the new standard, which fortunately the book does mention.
The principle main ways in which policy makers may be subjected to regulate platforms is antitrust. Platform competition is said to be a whole new ball game, since it involves several different types of competitions: platform against platform, platform against partner, and partner against partner. Though, we may initially think that competition between platforms themselves is fairly similar to that between pipelines businesses, this is far from always from being the case. Because of network effects, one or two platforms often end up dominating the industry in which they operate. This is not necessarily the product of anti-trust failures, but rather the reflection of the underlying dynamics of platform economics. Every of so often however, there are real legitimate cases for antitrust, like Facebook’s repeated acquisition of competing social media. Additionally, regulators should also be interested in evaluating how platforms treat their different partners. They sometimes (or often) have a tendency to give unfair advantages to some as opposed to others, like Facebook giving Lyft priority access to is API, or even themselves, like Google Shopping results being given more exposure than other comparators. Though, it often is unclear whether this type of behaviour consists in simply predatory business strategy or has illegal grounds. It often depends from region to region and context, as no platform is the same.
Overall, Platform Revolution is a fairly good introduction for whoever seeks to gain a better understanding on how platforms are made and come to dominate the new economy. The book ends on a fairly positive and bullish view for a fully platform-optimised future. Yet in light of recent events, I think this should be somewhat be reconsidered. Most of the high-profile tech scandals which have occurred in the two years since this book was published are related to platforms, Amazon, Google, Facebook, Uber, etc. It seems to me that because platforms are businesses fundamentally fuelled and built by growth, we often tend to accept much of their behaviour as merely part of the ‘game’, and argue that they will eventually partially regulate themselves. Yet, while I agree that the digital industry is still slowly maturing, this cannot come soon enough. Institutional frameworks do not necessarily need an complete overhaul either, we first need to ensure that platforms comply by sensible existing regulations, which remain plenty. Strong political will and suitable knowledge of the new rules of the digital economy are required, which, unfortunately, are both in short supply. I highly recommend this book to policy makers.
This book review was written as an assignment for the course History of Technology Revolution at Sciences Po Paris. The course is part of the policy stream Digital & New Technology of the Master in Public Policy and is instructed by Nicolas Colin, Laurène Tran and Besiana Balla.