Global businesses are grappling with a number of distinct but interlocking forces: The shocks and aftershocks of COVID-19; regulatory forces that are gathering steam across the globe, and the increasing call to reduce the carbon intensity of the economy. Digital platforms are no exception to these forces.
New entrants are prodding their way into established business-to-consumer (B2C) and business-to-business (B2B) markets while dominant platforms — notably Google, Amazon, and Facebook — have been called out for anticompetitive practices.
At the same time, platforms and the data layers they control, have the potential to strengthen global supply chains and reduce the carbon footprint of stakeholder businesses.
It’s a pivotal time to evaluate the state of platform markets and where they may be heading in a constantly changing ecosystem. At this year’s MIT Platform Strategy Summit on July 15, co-chairs Peter C. Evans, Geoffrey Parker and Marshall Van Alstyne will lead discussions with industry executives, venture capitalists, and innovators to offer roadmaps and actions for established and new platform businesses alike.
MIT IDE Content Manager and Editor Paula Klein asked Parker, Evans, and Van Alstyne to highlight some of the key topics and trends that will be featured at the upcoming Summit. Here is a summary of their responses.
Q: After a tumultuous year, how are B2C and B2B platforms faring? Give us a snapshot of the global platform ecosystems.
Geoff Parker: We see B2B platforms as the next emerging area for platform competition. The COVID-19 pandemic made it crystal clear that those with end-to-end digitization solutions reaped significant advantages relative to firms that were still using legacy systems. COVID likely accelerated trends that were already well under way and there is much more interest in deploying digital technologies in manufacturing and supply chain operations now.
We’ve seen significant concentration of firms in B2C markets, but we expect to see more participants joining the B2B fray. One reason is that B2B platforms require higher service, so costs — especially labor — should be significantly higher and customer needs tend to be more complex. Examples of B2B platforms include Salesforce, SAP, Siemens, and others. Another factor that might reduce “winner-take-all” outcomes is that the network effects that drive outcomes in many B2C markets are less pronounced in B2B markets.
Q: In your recent report, you present the benefits as well as the risks of M&As. However, public sentiment seems to favor stronger antitrust laws to protect the public and encourage innovation. What is your response?
GP: We understand, and in some cases share the public’s concern when M&A activity is on overdrive. In particular, firms sometimes purchase companies to head off direct competitors and this harms consumers. However, there are many cases where overall welfare is improved.
For example, M&A frequently enhance the functionality of a platform that then becomes available to a broader set of users.
Marshall Van Alstyne: Barring big platform mergers altogether because firms are already too large seems unwise; it is too blunt a fix. A better approach might be to consider at least two factors: Whether firms operate in the same industry, and whether there are network benefits from adjacent industries. Policies might limit the former but allow the latter.
For example, Pinduoduo started as a niche e-commerce player in China contending with the platform giant, Alibaba. If Alibaba had acquired Pinduoduo it would have reduced competition and likely been bad for consumers and merchants. Tencent, another giant Chinese platform, had a large presence in social networks, but almost none in e-commerce. Tencent bought a large equity stake in Pinduoduo which has helped it grow into a much stronger competitor to Alibaba. If Tencent had not stepped in, Alibaba — which had copied most of Pinduoduo’s features — might have crushed it or kept it small. This type of cross-market support should probably be allowed.
GP, MVA: We propose four policy tools to address M&A concerns.
- An “in situ” rights framework grants users the benefits of data portability without requiring data to move. Under this plan, algorithms come to the data where it is stored (“in situ”) letting users act on their data where it resides. By contrast, data portability moves the data someplace else, where it can’t be used directly and where it tends to lose value. In fact, it appears the European Union (EU) will adopt this proposal as we recommended.
- A higher degree of scrutiny for vertical mergers (e.g., when a platform merges with a service supplier).
- Compulsory merger notification and changes to the burden of proof.
- Incorporation of dynamics into merger analysis.
Q: Are open platforms and self-governance sufficient guardrails? What else is needed?
GP, MVA: As much as we wish open platforms and self-governance could provide guardrails, we are skeptical. Given that most regulation occurs “ex-post” — after a long time — and usually involves relatively minor fines, platforms have incentives to act first and deal with consequences later. As a result, we strongly believe that “ex-ante” regulation is needed. We support a modified version of the European Union’s proposed Digital Markets Act (DMA) and suggest there be a white list of permitted platform behavior; a black list of prohibited platform behavior, and grey lists of behavior that is prohibited by default, but where an option exists for platforms to make the case to authorities for why the activity should be permitted.
Q: In a data-driven economy what is a reasonable expectation for a platform company in terms of data collection, use, profitability, and transparency?
GP: Data is a fundamental driver of innovation; firms without data access will be at a significant disadvantage. As noted, we have called for easier access to data when authorized by its owners. Allowing firms to access data where it resides is likely to create the benefits of data sharing while mitigating the security and data fragmentation concerns that arise when data is transferred from one entity to another. We further call for the establishment of “watchtowers” within large platform firms where regulatory authorities could ensure that platforms are adhering to their stated governance principles.
Q: This year’s Summit features several manufacturing and energy executives. Why are these sectors heating up as platform markets? Can platforms help the transition to clean energy?
Peter Evans: Demand on companies to address climate change is ramping up. Indeed, many companies are looking for solutions to advance what is becoming known as the great energy transition: A broad and sustained shift away from carbon-intensive energy sources. This presents critical questions: Can platform business models play a role?
What are the opportunities for platforms to drive energy transformation at scale?
There are at least five ways that platforms can not only support but even accelerate the transition: Deployment acceleration; collaborative consumption; aggregation and trading; energy services, and freelance and expert networks. New platforms are already up and running in all of these areas.
Platforms can advance technology adoption by facilitating transactions and connecting and securing quotes from installers. One example is EnergySage, an online marketplace for solar photovoltaic and other clean energy technologies. The platform offers homeowners, businesses, and non-profits a way to compare prices and features. The quotes are designed to provide users with a clear format, metrics and decision-making tools, matching, and ultimately, deployment help.
As Airbnb and others have shown, platforms are great at enabling peer-to-peer sharing services that improve overall asset utilization. Better utilization can have important environmental benefits, too. Getaround illustrates how it works. The peer-to-peer car-sharing marketplace lets car owners rent out their cars by the hour or the day, with a $1 million insurance policy and 24/7 roadside assistance included. Shared cars are used more frequently and retired more quickly, which accelerates the adoption of newer, more energy-efficient vehicles. These benefits yield up to a 40% reduction of carbon emissions, according to the company.
Aggregation & Trading
While renewables are key to the shift away from fossil fuels, the fact that they are distributed and intermittent creates major challenges for the stability of the grid. A promising solution is a platform that supports local trading as well as the aggregation of distributed, small-scale production of what is sometimes called a “virtual power plant.” LO3 Energy’s Pando platform, for instance, automatically matches bids with offers and logs the transactions using a blockchain technology the company pioneered in 2017. Individuals can transact privately and the platform also supports businesses looking to buy renewable energy certificates from solar and wind producers. Rather than competing with utilities, LO3 will offer Pando to utilities as a type of white-label, clean energy platform-as-a-service.
Complex Energy Services
Another area where platform strategies hold promise is organizing complex energy services, such as providing clean energy to large, far-flung multinational enterprises.
Schneider Electric built a business in this sector but recognized that it could not fully serve these companies on its own: It needed to leverage other companies to provide a more complete solution set. To this end, Schneider Electric established a platform called The NEO Network which links more than 350 corporate, clean energy buyers with local solution providers. The network offers peer-to-peer digital connections and solutions in renewable energy, energy efficiency, and emerging climate change technologies.
Freelance & Expert Networks
Finally, platforms can help identify the talent needed to support the energy transition. Platforms can efficiently connect candidates with employers seeking freelancers with specialized clean-energy talent. U.K.-based SolarJobs matches registered candidates and employers with a highly flexible and easy to use platform in a wide variety of job categories.
There’s still time to register for the July 15 MIT Platform Strategy Summit here.