News by Forbes: Matt Spoke
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.
Shopify connects us with online merchants that sell endless potential products.
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.
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.
Shopify around Commerce: With a facilitator, consumers, merchants, and affiliates.
Netflix around Entertainment: With a facilitator, viewers, and producers.
DoorDash around Food: With a facilitator, consumers, vendors, and transporters.
The interest groups that make up online platform ecosystems include the company themselves (think Shopify Inc.), the creator on the platform (think Shopify merchant), the consumer (think of the customer shopping on a Shopify store), and the 3rd party contributor (think of the app developer building within the Shopify app marketplace). As a result of these various stakeholders, these ecosystems are 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 these 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 is the result of an evolutionary 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 acting for the 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.
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.
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.
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, and DoorDash. 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 (see my other article on this here). 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.
Solving these core platform problems is critical to the healthy economic growth of the next decade and beyond. Although some of the solutions to these problems are not difficult to imagine, it’s important to recognize that they’ll need to be built in a way that doesn’t simply shift the problem to a new platform operator. That’s where the blockchain comes in; a place for new solutions to be built outside of the economic interests of current software incumbents, but in a way that still maintains the benefits and user efficiencies that have made these ecosystems so successful to date.
To that end, last week saw the launch of a new approach by a project called The Open Application Network, aimed at “solving the unintended consequences of platform economies”.
Let’s hope they make a dent.
Special thanks to Mike Mason and the team at The Open Application Network in helping pull this piece together.