Platform economy
The platform economy encompasses economic and social activities facilitated by digital platforms. These platforms — such as Amazon, Airbnb, Uber, Microsoft and Google — serve as intermediaries between various groups of users, enabling interactions, transactions, collaboration, and innovation. The platform economy has experienced rapid growth, disrupting traditional business models and contributing significantly to the global economy.
Platform businesses are characterized by their reliance on network effects, where the platform's value increases as more users join. This has allowed many platform companies to scale quickly and achieve global influence. Platform economies have also introduced novel challenges, such as the rise of precarious work arrangements in the gig economy, reduced labor protections, and concerns about tax evasion by platform operators. In addition, critics argue that platforms contribute to market concentration and increase inequality.
Historically, platforms have roots in pre-digital economic systems, with examples of matchmaking and exchange-based systems dating back millennia. However, the rise of the internet in the 1990s enabled the rapid expansion of online platforms, starting with pioneers like Craigslist and eBay. Since the 2008 financial crisis, the platform economy has further expanded with the growth of sharing economy services like Airbnb and labor market platforms such as TaskRabbit. The increasing prominence of platforms has attracted attention from scholars, governments, and regulators, with many early assessments praising their potential to enhance productivity and create new markets.
In recent years, concerns about the social and economic impacts of the platform economy have grown. Critics have highlighted issues such as technological unemployment, the displacement of traditional jobs with precarious forms of labor, and declining tax revenues. Some scholars and policymakers have also raised alarms about the potential psychological effects of excessive platform use and its impact on social cohesion. As a result, there has been a shift towards more regulatory scrutiny of platforms, particularly in the European Union, where new regulations have been proposed to ensure fair competition and worker protections. Despite these challenges, platforms continue to be a dominant force in the global economy, with ongoing debates about how best to manage their influence.
History
The concept of platforms facilitating economic and social exchanges predates the digital era by centuries. Early examples include matchmaking services in China dating back to at least 1100 BC, where intermediaries connected potential marriage partners. Similarly, ancient grain exchanges in Greece and medieval fairs have been compared to modern transactional platforms. Over time, geographic areas known for specific types of production, like certain industrial clusters, have also functioned as innovation platforms, a concept that was further formalized in the 1980s with the emergence of technology platforms such as Wintel.The rise of the internet transformed platform-based businesses by dramatically improving connectivity and communication. Online platforms such as Craigslist and eBay emerged in the 1990s, while later social media platforms like Myspace and collaborative platforms like Wikipedia followed in the early 2000s. The 2008 financial crisis spurred the creation of new platform models, including asset-sharing platforms such as Airbnb and labor platforms such as TaskRabbit.
Despite the long history of platform-like systems, it wasn’t until the 1990s that scholars began to focus on platforms as a distinct business model. Early research primarily examined innovation platforms without special emphasis on digital platforms. By the late 1990s, understanding of the broader "platform economy" remained limited. The term "platform" has since expanded to include digital matchmakers and multi-sided markets, as described by Jean-Charles Rochet and Jean Tirole in their seminal work on platform competition.
In an academic context, "platform" often refers to systems that facilitate interactions between different groups, such as Uber, Airbnb, or TaskRabbit. However, platforms can also encompass non-digital matchmakers, such as business parks and nightclubs, or other entities that enable interactions beyond simple transactions. Scholars like Carliss Y. Baldwin and C. Jason Woodard define a platform as a system with stable core components and more variable peripheral components, enabling flexibility and innovation.
The development and impact of platforms continue to evolve, with ongoing academic and business discussions exploring their long-term implications and the ways they reshape markets, industries, and societal practices.
Platformization
Platformization is the increasing prevalence of large digital platforms that act as intermediaries between users, facilitating economic and social interactions in the public sphere. The term was first introduced by Anne Helmond, who described it as "the rise of the platform as the dominant computational, infrastructural, and economic model of the web" and examined how platforms extend their boundaries into new areas of the internet. This process includes the extension of platform infrastructure into diverse domains, encapsulating new areas of economic and social activity.Helmond's work has been built upon by other scholars, such as Nieborg and Poell, who describe platformization as the expansion of economic and infrastructural extensions of platforms into the web. These extensions affect how cultural content is produced, distributed, and consumed. Platformization often involves the use of application programming interfaces and software development kits, which allow third-party developers to integrate with platforms, decentralizing data collection while centralizing data processing.
Some scholars have compared the role of digital platforms to traditional infrastructure, such as railroads and utilities. Plantin, Lagoze, and Edwards argue that platforms now function as essential infrastructure, similar to the monopolies of the late 19th and early 20th centuries.
Business studies scholars have emphasized the network effects associated with platform corporations, where the value of a platform increases as more users participate. Critics, however, have raised concerns about how platformization can lead to the concentration of capital and wealth among a small number of business owners. For example, Trebor Scholz has argued that labor exploitation is a systemic feature of crowdsourced platforms such as Amazon's Mechanical Turk.
In the 2010s, the concept of platformization evolved from describing platforms as static entities to viewing them as part of a larger process of digital transformation. Helmond highlighted how platforms use APIs and SDKs to integrate third-party data into their operations, facilitating the decentralization of data collection and the centralization of data processing. Critics such as Poell and Nieborg have argued that this process reshapes cultural practices and influences governance, markets, and data infrastructures.
Simplified definitions of platformization exist, with one common interpretation being the creation of a marketplace that charges users for access. However, more nuanced definitions, like those of Poell and Nieborg, emphasize the broader institutional dimensions of platformization, including data infrastructures, markets, and governance.
Business model
The platform business model involves generating profits by facilitating interactions between two or more distinct groups of users. This model predates the internet; for example, newspapers with classified ads sections have long employed a similar approach. With the advent of digital technology, the platform model has been increasingly adopted, but success is not guaranteed. While some digital-native firms have quickly reached multibillion-dollar valuations and gained strong brand loyalty, many platform startups fail.Companies that focus on the platform model range from "born-social" startups to traditional businesses that incorporate platform strategies into their operations. Other firms may rely on third-party platforms rather than managing their own. A 2016 survey by Accenture found that 81% of executives expected platform-based models to be central to their growth strategies within three years. Research by McKinsey & Company in 2019 showed that firms using platforms, either their own or third-party, achieved on average a 1.4% higher annual EBIT growth than those without a platform strategy.
Platform operations differ significantly from traditional business models, where the primary focus is on selling goods or services. In contrast, transaction platforms primarily connect different user groups. For example, a conventional taxi company sells transportation services, whereas a platform company connects drivers with passengers.
A notable feature of platform businesses is their reliance on network effects, where the platform's value increases as more people use it. This often results in providing free services to one group of users to attract a larger audience, which then generates demand for the revenue-generating side, such as advertisers.
The shift toward platforms has posed challenges for some established businesses. For instance, companies like BlackBerry Limited and Nokia lost market share to platform-oriented firms like Apple and Google's Android in the early 2010s, as they failed to adapt to the growing importance of ecosystems over products.