The Unintended Consequences of Platform Economies

Every year, more of our daily economic and social behavior moves onto the internet. Most of this movement is facilitated by generous online platforms that build software to co-ordinate, connect, and empower us.

Uber gets us from A to B in the cars of strangers.

Airbnb finds us beautiful homes to stay in across the globe.

YouTube connects us with talented creators working on endless niche content about which they are genuinely passionate.

Quality of life after these platforms is objectively better in many obvious ways. They are “invisible engines of the digital age, creating value by lowering search or transaction costs.” as observed by David S. Evans. Take YouTube, for example; it has created a broadening and diversification of the experiences that can be created and consumed in the vertical of video content with a search experience that rivals that of Google’s search engine and at a total cost of $0 to you and I.

Platforms have reverted business models in every major industry and created complex win-win co-ordination games between stakeholder groups that all benefit more post-use. The “co-ordination facilitator” nature of the platform also makes it much more responsive and agile to the needs of customers and in macro-level changes in the market itself. Platforms have been crucial to the rapid economic progress of the past 30 years, and there is no end in sight to their continued disruption of old industries and in their ability to create new ones.

The Stakeholders

Platforms come in many shapes and sizes; however consistent across the vast majority is the emergence of interest groups that form a higher entity “ecosystem” around a problem or set of challenges.

Amazon around Commerce: With a facilitator, consumers, merchants, and affiliates.

Netflix around Entertainment: With a facilitator, viewers, and producers.

UberEats around Food: With a facilitator, consumers, vendors, and transporters.

We define these logical groupings as the following:

The Mothership: Is the platform itself, or rather the corporation that owns the platform and the access rights given to all other stakeholders. They are in most cases the facilitator of the transaction or search or both.

Consumers: Entities with purchasing power or eyeballs who have come to the online platform in search of value. In their aggregate, they are synonymous with market demand. This is the Netflix subscriber, the YouTube watcher, the Uber passenger.

Value Creators: Entities that are creating tangible value to be consumed. They are in many cases chasing consumer demand through signals provided by the platform and act as a market sensing entity in their aggregate. This is the Twitch streamer, the Uber Driver, or the Shopify Merchant.

Third parties: This group is much more diverse from platform to platform. They are entities that extend the functionality of the facilitator, however are not core to the platform’s business. It consists of advertisers, third-party app developers, payment & insurance providers, content farms, and much more.

Together, these interest groups make up online platform ecosystems. Vibrant, moving, complex 21st-century creatures we still don’t fully understand due to the complicated forces that have created them and the long term impacts they will create. We are however beginning to see repetition in the gaps that exist within their ecosystems.

The Unintended Consequences

Look no further than the inundation of headlines and research pointing to the new problems we face as a society dominated by a platform economy.

The existence of online platforms are the result of a Darwinian process that is changing how our markets function. They are producing intended outcomes that are good for stakeholders involved, but also creating new unintended negative externalities. The creation of these externalities is the result of the platform’s transition from acting with benevolence to their ecosystem with free services, features and requests, to bottom-line by extracting value from their ecosystem through 3rd party ads, paid features and risk-transfer. While this is their fiduciary responsibility as a company, it has however resulted in unintended consequences. The list is long, but three specific problems deserve examination.

Ownership

Who ultimately manages and has responsibility for users, payments, security, data, and compliance is ambiguous and inconsistent across platforms. By this, I mean there are no standards by which we determine ownership. In coordination games, ownership is a blunt instrument that can be used to settle disputes between stakeholders that are at an impasse; it is also an instrument that can be used opportunistically to censor. In the case of Shopify for example, ownership over a merchant’s customer payments data is opportunistic when dealing with revenue. However, when it comes to privacy compliance, the burden of ownership is passed to third-party developers.

Misalignment

Platform ecosystems contain stakeholders with various incentives. Decisions made to optimize towards one stakeholder experience can negatively impact another. Often these decisions are made in an opaque process and unilaterally. Platforms lack adequate standards or procedures for navigating these tradeoffs and misalignments. When “the mothership” determines that a single representative stakeholder group is the lifeblood of the entire ecosystem and optimizes indefinitely for that stakeholder group, they are placing a bet. Amazon’s bet is that through optimizing for “the consumer” group, they will forever own the market on “commerce.” They may win this category, but they are being broadsided by platforms like Square, and Shopify that optimize for merchants. Next-generation platforms that learn to govern these tradeoffs and find a better equilibrium that will prosper beyond the limitations of a single stakeholder focus.

Common Goods

Services and functions within the ecosystem must have commercial viability to be supported by the platform. There is no effective means of coordinating and funding public goods & services within these ecosystems. Nowhere is this more apparent than in gig-economy with platforms like Uber, Lyft, Foodora. Are Uber and Lyft drivers employees or contractors? Federal and State level policymakers can’t agree, and the policy they look to enforce likely won’t hold if the former is implemented. The Uber/Lyft position is “the platform is facilitating an interaction between two or more parties; as a result, we are not an employer.” If our future gig-jobs aren’t going to provide us with common goods like health and paid time off, we’ll need to find other ways to cover the cost of these critical social safety nets.

Making Platforms Healthy

Today we announced the launch of The Open Application Network.

Our mission is to create shared, neutral infrastructure for the consumers, creators and third-party stakeholders across platform ecosystems. We want to empower developers with the tools they need to test, validate, and commoditize standards of ownership. Create new incentive or governance systems that find better alignment between ecosystem stakeholders. And establish transparent and secure methods to coordinate capital amongst participants to fund shared objectives.

Developers using our tools build open applications. Open Apps are programs that put users back in control and are universally accessible across platforms. Using Open Apps, developers can hook into existing platforms like Uber, Shopify, Twitch..etc and create new breakthrough experiences.

We started as a blockchain company in 2016 and have learned a lot about how this technology has the potential to change the world. We’re now an open-source project focused solving the unintended consequences of platform economies, with a public blockchain as only a part of our solution stack, one which we’re working very hard to make accessible so that building open applications takes hours, not months.

Dig into what this looks like in detail by visiting our docs.

If you want to join us in our effort to solve the unintended consequences of platforms, start building, follow along, and join our community 🙏👊