Digital platforms have transformed firms, workers, and the economy. MIT Platform Strategy Summit leaders explain why–and what’s next.
Platforms beat pipelines. Network effects power platforms. By 2016, when the book Platform Revolution, by Geoffrey Parker,Marshall Van Alstyne, and Sangeet Paul Choudary, was released, these phrases were beginning to resonate with savvy digital marketers. But it was only a few years earlier that startups with disruptive business models for sharing homes, rides, and resumes were still in their infancy.
In short, anywhere there can be a platform there is likely to be one.
We could not have predicted such ubiquity this fast.The growing importance of platforms has also drawn attention to two- and multi-sided markets and their consequences. Platforms ushered in influential ideas like the “sharing economy” which describes how value can be created through sharing accommodations (Airbnb), co-working, ride-hailing (Uber and Lyft), and other collaborative models of asset utilization. Platforms are also behind the “gig economy” and the growing and matching of all types of labor with demand — from LinkedIn to TaskRabbit. Smartphone apps and social media have super-charged usage as well.
Q: What are some of the implications and impact of this rapid-fire growth?
A: In addition to the macro-economic impact on markets, there are huge implications for the firm itself. In the past, firms moved to the frontier by efficiently organizing supply chains and introducing more efficient internal business processes.
Platform business models change how firms reach the frontier. Today, a successful firm is more likely to be flatter, more networked, and data-rich. It is also much more likely to be “inverted” — that is, more likely to orchestrate value created by third-party complementors than produce value itself. Third parties create the posts on Facebook, the rides on Uber, the web pages delivered by Google, and the apps on iOS. Digital technology reduces transaction costs and makes it possible to efficiently create and coordinate third-party ecosystems. Many of the largest and highest performing firms achieve this position by orchestrating external contributors and collaborators — they don’t manufacture or own as many assets themselves. This is a major shift from a decade ago, too.
Q: Given the scale, efficiency and influence of the major global platforms today, how do you counter the negative public perceptions regarding antitrust, privacy, and regulation? Would you agree that not all of the success has been a good thing?
A: The rise of platforms is a broad phenomenon enabled by a rich array of economic and technological forces. Within this broader trend, significant attention has zeroed in on a small group of some of the largest and most influential platforms. We think the challenges with the major platforms (Google, Alphabet, Facebook/Meta, Apple, Microsoft, and the like) are real and they are coming into better focus. While these platforms clearly generate significant value for their users, they also have some major downsides — from election interference, as seen in 2016; data leakage, as seen with Cambridge Analytica, self-preferences in Google search rankings, refusal to deal on Alibaba, and using merchants’ own data to compete against them on Amazon. Anticompetitive behavior is under scrutiny across the globe.
The challenge facing society is how to retain the benefits while blunting some of the shortcomings.
In particular, social network effects depend upon aggregating users. Data network effects depend upon aggregating data. If firms are forced to divest or separate, there is a possibility that value might be reduced.
Q: What’s the remedy?
A: We’ve developed research that shows how an “in situ” access rights might allow entrants to get access to user data in the context of their prior transaction histories, search behavior, and social networks.
This right allows businesses and individuals to police and act on their own data, where it resides, and also permits users to authorize third parties to access live data on their behalf. This approach brings artificial intelligence (AI) algorithms to data rather than data to algorithms, while solving major problems about data portability– such as obsolescence, moral hazard reporting, non-actionability, and security. It also encourages competition among firms using AI to create network effects and increase innovation.
Other work shows how antitrust tools should focus on value creation and its distribution before focusing on competition. The scope of regulatory intervention should satisfy the following three criteria: value creation from operation of the platforms does not decrease due to the policy intervention; fair and transparent rules must govern the platform ecosystem; dynamic efficiency and competition must eliminate incentives for market misconduct and anticompetitive strategies.
Q: With so many mainstream and legacy industry sectors now involved in platforms, why is healthcare a focus of the breakout conference this year? What are some potential benefits in terms of patient care and medical breakthroughs?
A: Healthcare is an incredibly important sector, and represents nearly 20% of the economy. The industry has features that make it ripe for platforms: it is data intensive and highly complex. Improved healthcare through new clinical interventions can be developed through the aggregation of data across large patient populations and then targeted to specific individuals that are most likely to benefit.
There are also opportunities to dramatically cut costs and advance care by coordinating across different patient touch points – in-patient, out-patient, home-based, and pharmacy services. At the same time, the sector also has powerful players and regulations that do not easily embrace or lend themselves to rapid change. So there are lots of challenges, too.
Q: What do you see as the next technology frontier for platforms in the coming decade?
A: One area we are watching closely is the intersection of blockchain technology and platforms — something largely unanticipated ten years ago. We see significant growth and innovation in three basic types of Web3 platforms: cryptocurrency exchanges; non-fungible tokens or NFTs; and virtual environments, a.k.a. the Metaverse.
Cryptocurrency exchanges are platforms designed to facilitate purchase and exchange of blockchain-based fungible tokens. As the number of tokens has grown to more than 19,000, and the number of people holding one or more crypto tokens has expanded into the millions, the number of exchanges has grown, too. There are now more than 300 cryptocurrency exchanges that collectively process billions of dollars in transactions daily.
NFTs are also taking off with a hundred of these platforms in play and a collective market capitalization of $80 billion. Lastly, the Metaverse represents multiple virtual worlds in which participants can interact and engage in experiences that range from games to entertainment events. As these become more sophisticated, they can also be environments to create a digital identity and to buy and sell land, avatars, and other digital assets. Some see the Metaverse becoming an increasingly important economic opportunity. A recent analysis by Citi Group estimated the value of the Metaverse, including the hardware to enrich the experience, will grow to $13 trillion by 2030. Much of this value will be powered by Metaverse platforms.
From a platform perspective, it will be particularly important to watch NFTs.
For example, does unique token ownership offer new incentives that enhance network effects? Considerably more experimentation and testing are needed to determine if decentralized governance models will actually win out over the centralized models that have dominated the Web2 landscape.
Q: What economic and policy trends are on your radar?
A: The general buzz about tech platforms is quickly shifting from monopoly and regulation concerns to the financial worries all companies are facing today.
The past decade’s strong platform growth has taken place against a highly favorable macroeconomic environment — low inflation, low interest rates, and strong consumer demand. Now, as we read about Meta blunting their hiring and expansion plans, for example, we are considering whether an economic downturn exposes weaknesses in platform business models or if the value of network effects and inverted firm structures that create external value will help these firms to outperform the market.
We’re also watching the profound implications of what we call “the new digital divide” — the geopolitical fracturing of the internet.
As the internet becomes a greater source of value creation, often enabled by platforms, it has also become more contested. Nations not only intervene to protect consumer privacy and build a more durable safety net for gig workers, but also for broader national interests and economic development. For example, a growing number of countries now impose data residency requirements and other restrictions on the free movement of data. Others have intervened with selective promotions of infrastructure, such as 5G network investment, that favor domestic over international firms. Today, companies building or optimizing platform strategies must navigate a world of digital industrial policy that did not exist when we first began our research.
Q: How has the MIT Platform Strategy Summit itself evolved over the years?
A: The Summit has always offered a unique opportunity to follow and analyze the profound changes around us by gathering expert speakers and a global community. But we are also continually innovating with ideas like networking via Twine, music platform performances, and this year, an NFT for continuing education–all to enhance the value of the Summit. (See related story here.)
We look forward to this year’s Summit to continue this tradition.
