The power of platforms
New innovation strategies for the digital age
As part of the ongoing digitization process, virtually all economic and social sectors will be affected by ‘platforms’: healthcare, manufacturing, financing, agriculture, mobility, logistics, energy, etc. In my The Power of Platforms (Kreijveld, M., Vakmedianet, Netherlands, Deventer, 2014), I have analyzed innovation strategies of companies such as Apple, Google, Stratasys, Autodesk, Monsanto and Kickstarter.
Market opportunities and policy implications
Please see the presentation below for a brief overview of our findings.
The book (currently only available in Dutch, can be ordered though Dutch bookstores and book distribution, and the publisher Vakmedianet. The book was nominated in 2015 by the Dutch Certified Management Consultants organization OOA.
The rise of platforms
Apple, Google, Facebook, Airbnb and Uber: these are all companies which have created new economic domains. They have transformed traditional businesses by means of platform based innovation strategies.
A platform is a foundation of products, services or technologies upon which other parties can build further products, services and technologies. Often platforms are digital marketplaces which facilitate transactions between buyers and sellers, and which build upon the knowledge and input of their users to promote further development.
A platform can bring about a marked acceleration of innovation processes. New business models are created, with an entirely new work structure. Public sector bodies, companies of all sizes and individuals can all be involved in the joint development of new products and services.
Platforms allow various parties to share infrastructure or technology, knowledge and competences. In doing so, they use standards, licences and other agreements. Platforms enable market parties to develop products and services jointly and efficiently. They can address new developments and changing demand in dynamic markets such as energy and healthcare.
Platforms gain their value from the number of users and from user data. The more people who use WhatsApp, for example, the more valuable the service becomes. At the same time, it becomes more difficult for users to take their custom elsewhere. This is a self-reinforcing process.
Platforms leverage network effects: the more functionalities and users it has, the more valuable it becomes. Supply and demand reinforce each other through positive feedback loops. However, when platforms become too powerful, economic and societal interests may be at risk. Whether adverse impacts emerge, depends on the conditions that providers impose on its users. Closed platforms exclude other companies, smaller businesses and civil initiatives, thereby severely restricting competition. Consumers will find it extremely difficult to switch to another provider whose products are not compatible – a ‘lock-in’ occurs. While integration of products and services within a single platform is convenient for users, it restricts their freedom of choice. In addition, platforms can achieve a degree of penetration and user take-up that makes them almost essential (for example WhatsApp or Google Maps). They more or less resemble a ‘public service’.
Download: Research_Brief_-_The_Energence_of_Platforms_new_policy_required (2014) How governments should respond to the rise of the platformeconomy.
Platforms also draw upon the knowledge, services and data of their users to feed the innovation process. Although users benefit from providing their data to the platform, being a data source often means they also lose control over their personal data. Such negative impacts implies obligations for governments to safeguard public interests: access to services must be guaranteed, just as the compatibility of systems to ensure free competition.
Regulating platforms in domains such as health care, energy or manufacturing can learn from past experiences in telecom policy (regulating internet access and net neutrality). However, effective regulation of platforms needs an updated policy approach. An integrated policy vision is required, overarching several policy domains and issues: intellectual property rights, (technical) standards, data protection, market regulation and competition. Competition policy needs to be reinforced: proposed mergers and acquisitions should be assessed in terms of their impact on new and existing markets. Where necessary, separation of the platform’s bundled products and services needs to be enforced, ensuring access for other parties. In order to minimise switching barriers, current regulation needs to be updated to ensure consumer choice is adequate. Where platforms evolve into a ‘public good’, additional requirements by government may need to be imposed, related to conditions of use, stability of the infrastructure, and accessibility.
Read my contribution to the European conference on The Digital Agenda: eurocpr2015_submission_19
Contact information: m.kreijveld [at] gmail.com
This book analyses the innovation strategies of Google, Apple, Amazon and Uber. And the rise of platforms in new digitalizing areas of society such as 3D-manufacturing, crowdfunding, potato-breeding (genomics) and healthcare.
Also read the policy advice based on my research. Research Brief Platforms Kreijveld 2014