Final Signal – Looking back and looking forward

Photo: FreeImages.com/Malik Bhai

As the Platform Value Now project comes to a close, this final Signal post looks back at the development of the platform economy and discusses its further development. Over the past six years, we conducted horizon scanning to look for “weak signals” about possible future trends with the platform economy and then wrote Signal posts (66 of them in total) summarising those weak signals to help raise awareness about the platform economy in Finland.

Not every weak signal and prediction came to fruition, but many did. Below we discuss those predictions for some of the key areas of the platform economy and look forward to the future at what might be next in the digital platform economy by discussing some of the most recent developments. We would like to encourage all our readers to think about what kind of platform economy we want to have in the future. How can the platform economy add to people’s happiness and wellbeing? What are the challenges that we would like to tackle with the aid of platforms and what kind of stance do we want to take regarding the ethical issues of the platform economy?

Platform Business Strategies

Platform strategies originally gained attention because of the spectacular growth and performance many of the platform companies had attained. Now, the largest consumer-facing platforms, such as Alibaba and the group known as FAANG (Facebook, Amazon, Apple, Netflix, and Google) have dominated “traditional” businesses and are among the most highly valued companies on the planet. Early on, platform strategies were exemplified by two-sided or multi-sided markets. Such a market has two or more user groups, usually the consumer side and the producer side of the market, with the platform connecting them. What is essential for the platform to grow is the positive network effects in the system. They are created as the different user groups benefit from interacting with each other through the platform. The creation of a successful platform business is not an easy task. Although the most valuable companies utilize platform strategies and platforms are extremely popular among entrepreneurs and private investors, many platforms lose money. At the same time, platforms are emerging “everywhere” and companies in every sector should consider their strategy and role in relation to platforms.

There has been a lot of discussion about whether platform business strategies are different in the Business-to-Business (B2B) realm than with Business-to-Consumer (B2C) business models. The number of customers is typically far smaller while the value of each customer relationship is much higher in the B2B sector than in the B2C sector. Strategies of consumer-facing platforms are often based on utilizing consumer data, but companies as a user group of a platform often have a much stricter attitude towards sharing their data than consumers do. However, platforms are disrupting B2B industries as many companies are building out digital platform ecosystems to strengthen their interconnections with other organizations and their customers. They are also incorporating digital platforms built around Artificial Intelligence, robotics, “anything” as a service (XaaS), smart sensors, communication/collaboration, distributed ledger, etc. into their operations.

An important question for Finland is to identify the most promising sectors for Finland to focus on when developing platform businesses. The signal posts do not give a direct answer to this question, but they show small glimpses of what is happening in specific sectors. We have signal posts addressing sectors such as agriculture, logistics, manufacturing, smart city, recycling, marketing, banking, food, forestry, gaming, health, and fitness. Transport, government, and education have all been discussed in several signal posts. Further, the experiences of Finnish companies are highlighted in a Platform Value Now study that was conducted to explore how Finnish companies view and capitalise on opportunities in the platform economy. The study was based on interviews conducted in Finland and the USA in 2019 with companies from various business sectors such as food, pulp and paper, manufacturing and security.

Innovation Policy for the Platform Economy

Due to the incredible power of platform companies and the disruption they bring about, the platform economy is often seen as a global race in which every nation wants to succeed. So far, the biggest platform companies are based in the USA and China. For countries like Finland, this creates challenges for skilled employment, taxation, and trade. It is not just a question of companies’ platform strategies but also Finland’s national platform strategy and a joint European strategy.

When it comes to the wider strategies of developing the European innovation system and supporting Finland’s position in the global platform economy, it needs to be understood that Europe and Finland are excellent in innovativeness and produce a high number of start-ups. The challenge is that after the initial innovation many promising start-ups move to hot-spots like Silicon Valley to grow and Europe loses the investment made in them. It is well known that Silicon Valley operates like a platform by connecting different user groups such as technical/business experts, scientists, venture capitalists, incubators, start-ups, incumbents, etc. The result is a strong network effect that helps the entire ecosystem grow and thrive.

However, Europe is increasing its efforts to stay competitive. As an example, the smart specialisation strategy (RIS3) develops local synergies for innovation. Europe is also bringing together different innovation services through initiatives such as the European Innovation Council (EIC). Mission oriented innovation policy is one way to create the kind of momentum that is needed for disruptive innovation. There are views claiming that even many Silicon Valley innovations are based on initial high-risk investment by the state. Finding different ways to further foster the self-reinforcing positive feedback loops in the innovation system might be the key to increasing Finland’s and Europe’s position in the global platform economy.

Regulatory Issues

There are a lot of regulatory issues related to the new platform economy. For example, who should get access to platforms and who can be excluded? How should we approach the issue of data ownership? How do you protect data privacy and security? How do nations ensure fair distribution of tax revenues in the global platform economy? How do they ensure worker rights?

Employment is one of the issues that has been given visibility in our signal posts. As the platform economy emerged, it became clear it would change the nature of work by increasing flexibility, matching labour and tasks, providing new ways to work (e.g. Uber), and new ways to monetize assets (e.g. AirBnB). While creating opportunities for some platform workers, some platforms created negative issues with taxation, working conditions, labour legislation, the ability of workers to organize, and downward pressure on wages.

While the users of platforms are increasingly global, the development of the platforms and the associated tech industry jobs are concentrated in a small number of countries, mainly in the USA and China. Other countries, such as Finland, Canada, and the EU as a whole, are actively working to address skills gaps and create an environment that encourages the creation and growth of locally developed platforms to reduce the risk they will become platform “have nots” in the future.

A major topic is fair competition. As the platform economy was on its meteoric rise, there were early signals that the largest platform companies would disrupt the players that dominated the “old world” economy by replacing an “old world” monopoly with a more modern monopoly that had similar shortcomings. These new monopolies might be even more powerful and more difficult to regulate than the old ones, which has made them all the more interesting from a business perspective – and cumbersome from a public policy perspective. Recently, the US Federal Trade Commission has sued Facebook for illegal monopolization. Amazon has been charged with abusing its dominant position in the EU. Now, the European Commission is proposing a new set of rules in order to create a safer digital space in which the rights of all users are protected as well as to establish a level playing field to foster innovation, growth, and competitiveness.  The new Digital Services Act sets clear rules framing the responsibilities of digital services to address the risks faced by their users and to protect their rights, as well as rules covering large online platforms acting as gatekeepers.

Alternatives to monopolistic platforms

The focus of large, monopoly platforms has been on value creation for shareholders rather than value sharing to other members of the ecosystem and society. However, the signal posts show that accompanying these early signals were calls for more sustainable or equitable alternatives to the platforms that were beginning to dominate. While these haven’t developed yet, some of the alternatives include platforms run as cooperatives, “Zebra” companies, a Commons Economy, and a Team economy. “Zebra” companies aim for sustainable prosperity rather than maximal “unicorn” growth. In a Commons Economy, platform elements are considered “commons” but with for-profit and non-profit services built on top. In a Team Economy, impermanent groups form around a problem then disperse while a platform is used to coordinate activity.

Artificial Intelligence

Over the course of the Platform Value Now project, one of the most prevalent sources of signals about the future has been Artificial Intelligence. Looking past the hyperbole about achieving singularity and AI consciousness, most of the signals relate to practical uses of Artificial Intelligence and Machine Learning. The role of AI and algorithms is essential in the platform economy. Platforms connect different user groups and enable data collection and sharing between them. However, it is the algorithms and AI that are able to refine the data into meaningful information that brings value to the different user groups and aids their interaction. As AI technologies have advanced, the predictions about the economic impact of AI have grown significantly. Around 2015/16, many forecasters predicted AI would have a USD$ 5T global impact by the mid 2020s. Now, many forecasters such as McKinsey & Co and PwC are predicting AI will have a USD$ 15T impact by 2030. Access to large amounts of high quality data is essential for the development of AI. Platforms can have an essential role in the collection and integration of this data.

The early signals pointed to AI’s disruptive potential in industries such as finance, insurance, law, and robotics.  In addition to these industries, the use of AI is also growing rapidly in medicine, manufacturing, transportation, and consumer-facing speech recognition/personal digital assistant platforms.

There are a number of concerns about AI that have also turned into reality. Namely, concerns about unethical uses of AI (e.g. facial recognition or intrusive employee surveillance), the potential for learned bias if the datasets used to train the AI contain biases, and the “black box” nature of AI often means that humans can’t understand, and learn from, how AI algorithms make decisions. The European Commission is promoting excellence and trust in AI as well as supporting the growth of a European ecosystem on AI.

Distributed Ledger / Blockchain

Blockchain and Distributed Ledgers held the promise of quickly disrupting industries such as banking, stock trading, insurance, and health care and there have been several signal posts on distributed ledgers.  However, their usage has been more measured. Rather than being an “outside disruptor”, they are often being integrated into existing technological infrastructures.

While most of the publicity surrounding blockchain has been in relation to cryptocurrencies, they have been affected by volatile valuations and a lack of trust and transparency, as well as scaling limitations and concerns around energy consumption.

Using distributed ledgers to ensure integrity, as well as the use of smart contracts, have the greatest disruptive potential. While it is progressing more slowly than originally thought, they have the potential to eliminate “middlemen” positions such as lawyers and customs brokers as well as allowing unprecedented levels of trust in areas such as agricultural supply chains, pharmaceutical trials, or tracking carbon footprint.

Taking distributed ledgers and smart contracts to their extreme is the idea of a Decentralised Autonomous Organisation (DAO). While largely theoretical at the moment, a DAO entirely eliminates human inputs by using a network of smart contracts that automate essential and non-essential business processes.

Towards New Value

Like other economic revolutions of the past, both the strengths and weaknesses of the platform economy are now an integral part of the global economic system. As digitalisation and the growth of platforms continues, the future direction appears to be towards the development of mega-platforms. These emerge when platforms begin to connect with other platforms and form an interconnected system that is capable of gathering, analysing, and sharing large amounts of data within the system to foster innovation and new products and services. This allows for new possibilities for value creation.

Much of the early platform discussion has centred around the enormous business growth and financial wealth that platforms may bring, as well as the specific business strategies for creating rapid growth. An important enabler for financial growth is the data market. At the moment, the data market is still in its infancy, but its growth can already be seen, e.g. as more and more companies are selling their customer data. The market for customer data is huge, although the worth of a single person’s data is typically low.

Europe is in a challenging competitive situation in the digital platform economy when compared with the USA and China. To improve its position, it has adopted a bold strategy that aims at a human-centred and fair data economy that meets global challenges and combines different tools and strategies such as a digital single market, the new industrial strategy, innovation policy, and regulation in a coherent manner.

What makes platforms and data markets so fascinating is the incredible transformative power they have – it is like “technology on steroids”. For example, they allow us to develop personalized medicine, improve our transport and energy systems, renew our agriculture and all kinds of production systems, develop a circular economy, fight climate change and emissions, and make better decisions at all levels. These transformations are really about improving the lives of people and even the state of the planet, rather than about the mere financial value of these innovations. The ongoing transformation will affect all aspects of our lives.

However, platforms are not automatically the cure for everything. Technology does not necessarily make people happy. Platforms are just a tool that can be used in good ways and in bad ways. That is why we need to develop the needed regulation as well as agree on new playing rules (see e.g. Sitra).

Looking back and looking forward, with this final signal post we would really like to make the readers think about what kind of platform economy we want to create? How can the platform economy add to people’s happiness and wellbeing? What are the missions that we together wish to accomplish with the platform economy? And what kind of stance do we want to take regarding the ethical issues of the platform economy?

 

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EARLIER SIGNAL POSTS

While a complete listing of Signal posts can be found on the Platform Value Now website, below is a selection of Signals that are related to the topics discussed above.

Platforms and different sectors

Platforms and eco-consciousness drive innovation in the pulp and paper industry (2020)

Managing health in the digital age (2020)

Gaming industry meets the platform economy (2020)

Interconnected platforms (2020)

How digital platforms are helping us manage through the coronavirus (2020)

Platforms for active transport, fitness and exercise (2019)

Is cyber security next to be disrupted by digital platforms? (2019)

Digital platforms for supply chains and logistics (2018)

Public sector ambitions in the platform economy (2018)

Food in the platform economy: Consumer apps, production chain management and visionary ideas (2018)

Platforms for education and learning (2017)

Agriculture in the platform economy (2017)

Supporting innovation in platform economy

Interview study report: Do Finnish companies capitalise on opportunities in the platform economy? (2020)

Insights to platforms from Silicon Valley (2019)

Turning common pessimistic beliefs of platforms into positive narratives (2018)

Finland’s master plan for platform economy (2017)

Platforms and employment

Employment in the digital platform economy (2020)

Gig economy (2017)

Skills for platform economy (2016)

Workers in platforms (2016)

Platforms and fair competition

Ethics in the platform economy (2018)

Components of trust in the platform economy: Ability, integrity and benevolence (2018)

Alternatives to monopolistic platforms

Commons, zebras and team economy (2017)

Alternative forms of platforms in ridesharing (2017)

Platform cooperatives (2016)

Artificial intelligence

Artificial Intelligence (2016)

Use cases of AI for platforms (2016)

Chatbots and conversational commerce (2016)

Biases in artificial intelligence (2016)

Distributed ledger / blockchain

Problems with blockchain (2017)

Distributed autonomous organization (2017)

Blockchain (2016)

 

SELECTED ARTICLES AND WEBSITES

Amazon charged with abusing EU competition rules

Calculator for testing the value of your personal data

Competition policy for the digital era

Digital Services Act set to bring in new rules for tech giants

Emerging technology trends

Employee surveillance

EU Digital Services Act package

EU plans substantial fines for gatekeepers that break competition rules (in Finnish)

European approach to Artificial intelligence

European Innovation Council

European Strategy for Data

Europe’s digital sovereignty

Facebook sued for monopolization

Finnish companies’ views on opportunities in the platform economy

Future of platforms

Metaphors to describe and explore platform company strategies

Modeling the global economic impact of AI

One out of ten companies is selling their customer data to third parties (in Finnish)

Platforms and ecosystems (in Finnish)

Platforms connect users and providers

Prediction: AI will have a 5-trillion-dollar direct impact on the workforce by 2025

Rulebook for a fair data economy

Silicon Valley and the entrepreneurial state

Sizing the prize – What’s the real value of AI?

Smart Specialisation Strategy

Heidi Korhonen

Senior Scientist VTT

Phill White

Research Scientist Global X-Network

Raija Koivisto

Principle Scientist VTT Technical Research Centre of Finland Ltd

Brenda Fox

Founder, CEO Global X-Network
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