Platform Economy

= "Intermediation of decentralized exchanges among peers through digital platforms".

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Description

"The platform economy forms a second core of the sharing economy. We define the platform economy as a set of initiatives that intermediate decentralized exchanges among peers through digital platforms. Platforms are gaining considerable weight in contemporary capitalism (Srineck, 2016). According to Evans and Gawer's (2016) survey, about 70% of unicorns (private start-up companies with a valuation higher than $1 billion without going public) are built on a platform model. Platforms totalled more than $4.3 trillion in market capitalization in 2016. Such platforms create value by connecting and organizing transactions rather than producing themselves. They also create strong network effects, as their relative value rises with the number of actors – users and suppliers – joining their ‘ecosystem’.

Platforms refer to many different organizational forms in the field of strategy and innovation. Innovation platforms, such as Intel, Microsoft or Cisco, shape innovation processes by providing central technological building blocks on which other actors can develop complementary products and/or services (Gawer and Cusumano, 2014). They differ from transaction platforms, such as Amazon, eBay or Apple with its Appstore, that act as intermediaries or marketplaces that organize and facilitate transactions between users, buyers and suppliers (Evans and Gawer, 2016). The sharing economy is often associated with peer-to-peer transaction platforms, a type of platform where individuals exchange goods and services (and not only information) (Weber, 2014), which exemplifies what some have labelled “crowd-based capitalism” (Sundararajan, 2016). The platform economy, as used in our framework, predominantly refers to such transaction platforms (cf. Mair and Reischauer, in this issue), but the term transaction is not restricted to market-based transactions, it can also include non-monetary transactions. As Sundararajan (2016: 38) notes, the ‘sharing economy spans the market-to-gift spectrum’, including platforms that enable gift-giving, bartering or swaps and are based on altruistic motivations and non-monetary exchange.

Transaction platforms have disrupted established markets and bureaucratic organizations that build on asset integration, such as transportation, accommodation, and financial services (D'aveni and Ravenscraft, 1994; Srineck, 2016). While these post-bureaucratic platforms explicitly refer to communities, they use draw heavily on market mechanisms to coordinate transactions. Platforms use digital technologies to externalize most production activities to individuals that interact in a peer-to-peer manner, and to secure and control transactions remotely. Digital technologies reduce the transaction costs that traditionally hamper market exchange (Williamson, 2000). They decrease the cost of finding information as well as concluding and monitoring contracts. In addition, they mitigate opportunistic behaviour and uncertainty, and generate trust through rating systems and insurance mechanisms. Digital technologies also enable platforms to remotely perform coordination and management tasks through algorithms, such as evaluation, information flows, and pricing (Malone et al., 1987). They facilitate a massive scaling of transactions among strangers, a phenomenon labelled ‘stranger sharing’ (Benkler, 2004), which used to be confined to tight communities involving clan-based mechanisms. As a result, they extend the market logic to new frontiers by organizing marketplaces where small transactions can be scaled massively.

The platform economy's promises are consistent with the predominant market logic and post-bureaucratic ideals. Platforms offer the economic promise of new market developments based on large, secure, and decentralized access. For those that promote the platform economy, these markets provide opportunities to individuals, either as consumers (giving cheaper and secure access), or as producers (creating entrepreneurial ventures). Imbued with liberal and libertarian values that have influenced the digital culture and their entrepreneurs (Turner, 2006), platforms promote themselves as a way to fight centralized institutions, such as the state, professions or large corporations. This view of disruption and disintermediation as an emancipatory ideal, which questions the legitimacy of established institutions, is likely to play a role in the conflictual relationship platforms tend to have with regulatory institutions (Edelman and Geradin, 2015).

Due to their scaling potential, platforms generate massive controversies and paradoxes (Slee, 2016; Srineck, 2016). Behind their professed ideology of free markets, flat organizational models and dis-intermediation, it is hard to overlook the increasingly visible hand of intermediaries and market makers. While platforms promote market disruption and increased competition, their scaling potential (backed up with massive venture capital funds), combined with strong network effects, tends to lead to new technological giants such as Airbnb, Uber and Blablacar (Srineck, 2016). These platforms use power asymmetries to capture most of the value that independent workers and customers create (Bauwens and Kostakis, 2014). Srineck (2016) argues that once ecosystems have been created, platforms naturally drift towards an ‘enclosure of ecosystems’. Recent controversies about Uber and Airbnb progressively raising their commission constitute examples of such tendencies.

Critics also condemn platforms for promoting a paradoxical discourse. For some, references to ‘sharing’ and ‘communities’ tend to mask pseudo-sharing practices (Belk, 2014b) and a logic of neoliberal financialization (Martin, 2016; Murillo et al., in this issue). Far from the stated emancipatory ideals, the development of algorithmic management (Lee et al., 2015) shows how technology extends the reach of managerial control far beyond the traditional company frontiers. Many observers point to the strong subordination, lack of protection, and insecurity of platform workers, who are legally independent but economically dependent on platforms." (https://www.sciencedirect.com/science/article/pii/S0040162517309101?platform=hootsuite)