Everyone has to engage with the new “platform economy”. It promises a future of communities and connections, and not inequality and exclusion.
There is something happening in the “platform economy” that once seemed unthinkable: new firms are disrupting established markets and challenging incumbents, including major corporates.
Airbnb is rapidly gaining market share in the global hotel and hospitality industry. Traditional taxi services are replaced by ride-sharing companies, such as Uber or Didi.
The definition of the platform economy includes any peer-to-peer business or community-based platform. Wikipedia has replaced the traditional encyclopedia. Spotify is changing the business model for music. Video sharing platform YouTube is a threat to mainstream media. Medium is expected to disrupt both reading and writing. For more recent examples, think TaskRabbit (household errands), Lending Club (P2P lending) or SolarCity (solar power “roof rentals”).
Fast-growth, “tech savvy” companies with few assets and even fewer employees are driving the rapid growth of a platform economy. Crucially, such firms embrace a mission-driven, flat, and inclusive culture. Value and wealth are created through platforms, instead of the management of workers and physical assets.
But … What is the Platform Economy?
The platform economy is all about sharing. Sharing means offering an opportunity for service or content providers to connect directly with user-consumers. The key innovation of the platform economy is an online platform that facilitates direct interaction. Again, think Uber, or AirBnB. Without the platform, the providers and consumers wouldn’t be able to connect. Or, at least, the costs of connecting would be prohibitively high.
The online platform facilitates new opportunities for interaction and exchange between service or content providers and users. The platform also solves the obvious trust problem that arises with direct interactions between strangers: “Why should I trust you?”
An online platform has the potential, when implemented properly, to solve this trust problem by allowing complete strangers to trust one another via a system of community reviews or ratings. Social relationships that previously were either impossible or heavily mediated are now available 24/7 via a smart phone or laptop and app.
Of course, putting in place an architecture that makes connections and facilitates trust creates a design challenge to the platform provider. In a TED talk, AirBnB founder Joe Gebbia, explains this perfectly. Building a platform that overcomes the deeply rooted idea that “stranger=danger” has been absolutely essential to the success of AirBnB. It might be difficult, but it is possible.
To be successful, sharing platforms need creativity on all sides. Service or content providers need to think creatively in order to make themselves more attractive to user-consumers. Bad reviews or ratings help service or content providers improve themselves. Conversely, platform builders need to think more creatively in designing a platform that delivers the most personalized and meaningful experience for consumers. The user-consumer is in the unique position to help everyone to be more creative by providing meaningful feedback on both the service/content and the platform.
This instantaneous feedback — in the form of ratings and reviews — creates strong incentives for all parties to be more creative. Not least because loyalty in a platform economy is so fragile. Platform providers, service providers and content providers all have to be very careful, as dissatisfied user/consumers can easily switch to an alternative platform or provider.
Crucially, this type of creativity depends on freedom and responsibility. Open dialogue, a “best ideas wins culture” and a willingness to “give before you get” are all necessary to maximize opportunities for creativity. A mission-driven, flat, and inclusive culture is therefore vital. And this is something that the most successful firms operating in the new economy understand.
In summary, platforms have been re-invented by new technology. Doing business in a networked age means engaging with questions of interactive connectivity. For platform providers, an important consequence of sharing is the generation of “Big Data” that facilitates a fine-tuning of the service. But the implications of this model affect every firm. Every firm — young or old, tech company or non-tech company — now needs to think about platforms and what it means for their business.
But platforms also offers opportunities for developing new technology. In this new world, imagination and speed are everything. This means leveraging the “Big Data” that is collected in order to be more creative and faster. For example, in the on-going development of artificial intelligence and automation. In this way, “Big Data” can become even more powerful and sharing can drive future technological innovations.
Responses to the New World of Platforms
Politicians, regulators (local, national and international) and incumbents have reacted to the new realities of a platform economy in different ways:
Response 1: Resisting
For many, fear of the new challenge creates a strong incentive to resist. Incumbents, challenged by new players, pressurize policy-makers to preserve the status quo. New regulations often prohibit, or otherwise limit, commercial exploitation of new business models.
Alternatively, resistance is more passive. Nothing is done. This can result in expensive and time-consuming litigation.
Or, if nothing is done, nothing can happen. Think FinTech, HealthTech or commercial drones. In the absence of any regulation, new forms of sharing that use these technologies can be stymied by inaction.
Another form of resisting is to feed the skepticism surrounding this new world. This often involves the application of a 20th Century perspective to the platform economy in an attempt to discredit it.
The Pew Research Center, for example, recently came out with a report about AirBnB suggesting that the platform economy is just a fad. It is not going to work — so the argument goes — because less than 1% of “hosts” using the AirBnB platform actually make any money from renting their property. In the long term, this condemns the platform to failure. Similar skepticism about revenue potential can be found in discussion of most other new platforms.
The problem with this argument is that it ignores the fact that most hosts are not in it for the money or, at least, the money is not the only or prime factor motivating them to offer rooms in their homes. It is about meeting new people or introducing their home town to the world. It is a mission-driven, rather than a profit-driven, activity. This is true of other platforms. And judging the platform economy in purely monetary terms somehow misses this vital point. In this respect, it is important to consider the connection beyond the transaction.
Response 2: Paying Lip Service
A second response to the new world recognizes that it cannot be ignored. The language of sharing is embraced, but nothing substantive really changes. Lip service is paid to the image, ideas and values of the platform economy, but regulatory models or business structures don’t change.
Many established firms, for example, try to be more open, but even a cursory look beneath the surface reveals that they aren’t.
There is strong evidence that Millennial workers, for example, prefer flexible working hours. Many companies know that the new world is coming and want to project an image of openness and flexibility in order to attract the best Millennial talent. But inside the company, however, they actually operate a traditional hierarchical environment that drives away those looking for a rewarding, creative and more open type of work experience.
The new world of platform, sharing and being connected improves possibilities for creativity, productivity, and happiness. But many companies are still scared to fully embrace this model of trusting employees.
Or take social media. Many firms acknowledge the importance of a social media presence in a platform economy, but they don’t really change the top management to include people who possess the necessary expertise with these new communications technologies. At the top level — the Board of Directors, for instance — there is no one who actually understands or has practical experience of running a business in the new world. The people in charge are just the same old people with the same old, traditional skill sets.
And some companies, don’t even allow top managers to use social media at all, out of fear that they might disclose information that may hurt the company or negatively affect the stock price.
Again, there is often a disconnect between the values a firm projects in order to look relevant or “cool” and the realities of that firm’s organization and culture.
Response 3: Embracing the New World
The third response is to buy into this idea of change and to make a genuine attempt to adapt to the new world. This means constantly re-inventing what is done based around platforms.
For Regulators & Government. This means creating opportunities to attract and actively promote innovation and startups operating in the platform economy.
But answers to the questions of what, when and how to regulate are not always self-evident, particularly in an age of constant technological innovation.
Take Uber, for example. A crucial question for regulators is whether it should be regulated as a transport company or a digital platform. If it is a transport company, arguments about unfair competition and safety come into play, complicating regulatory choices.
Alternatively, Uber can be understood primarily as a digital platform for the social production of trust. The user-consumer would not get into a stranger’s car without the infrastructure of the platform that enabled them to trust. In the past, taxi companies provided the service and consumers could trust the taxi company because of a complex web of licensing and accreditation. In the past, consumers (obviously) trusted the corporation more than they would trust a stranger. Now it is the platform that creates the trust and facilitates the social interaction and exchange. Any trust that Uber generates is based on the platform and not the recognition or accreditation of the state.
In this way, online platforms can now substitute the corporation and the web of rules and regulations that in the “old world” were put in place in order to generate trust.
Of course, balancing the interests of the platform, the driver, and the user-consumer is critical and we don’t pretend to have the answer how to do that. But balancing is only possible when the role of the platform is properly appreciated and embraced.
Interestingly, in an experiment in a Creative Thinking class with international students from different countries in Asia, we found that the perception of whether Uber is a transport company or digital platform was greatly influenced by the regulatory framework that had been adopted. In those countries that treat Uber as a transport company and regulate it accordingly, the students were inclined to think of it as a transport company. Conversely, in those countries where the regulation of Uber was not framed in this way, the platform view dominated. The perspective adopted by the students was strongly affected by how regulators from their country first framed the issue. In this respect, regulators need to be very careful and recognize the long-term effects of their initial regulatory move. If nothing else, it has a strong influence on the agenda for all future discussion of the issue.
For Companies. This means embracing the Cloud, the Big Data, Internet of Things as mentioned above. They need to do this because in the new world all products must be connected to other systems.
In particular, there is the “crowd culture” aspect of a platform economy. In addition to the expectation that products are connected in a technical sense, products and services also need to be connected by facilitating connections that build a community of users that matter to them. Community building around platforms has taken on a new importance in an age of social media and sharing.
Maintaining a strong social media presence and making social media a destination for all users of a product is seen as important for all firms. The goal of social connectivity is to build a crowd culture around a product via the company’s social media strategy that adds to the user experience and ensures deeper product loyalty and sustained commitment to the brand.
For Everyone. This means re-thinking everything we thought we knew about living, working and learning. Everything needs to be re-designed around platforms. This involves “out-of-the-box thinking”. For instance, the platform economy is built on a different understanding of ownership and property.
The Future …
The platform economy will solve many problems and create new opportunities. Sure, traditional jobs may disappear, but the platform economy will create new jobs.
Everyone stands to benefit from the new forms of social interaction and communities that the platform economy makes possible. Everyone can potentially offer something (including any type of work) through on-line platforms and the more open, direct and personalized interaction between service providers and consumers that such platforms facilitate.
Of course, difficult questions remain about preventing platforms from becoming too powerful and exploiting this privilege. And there are genuine uncertainties surrounding a hyper-connected world built around platforms. But compared to interactions that have traditionally been mediated by companies, there will be less layers and everything will be more open, flatter and looser.
Anyway, we have no choice. There is no going back. “Freedom & responsibility” is the most important principle of the new platform economy. The best strategy for everyone is to connect, to share ideas, and to build new communities around platforms. This offers the best opportunities for authentic experience, a space for creativity and personal happiness.
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