Trust and the 'Platform Economy' – Part 1

Posted on 9th May 2017

Welcome to the Business Empathy Forum and thank you for your visit. In this post I begin a discussion around the so-called ‘platform economy’ that seems to be mushrooming all around us. Once I have explained several concepts I would also like to explore several implications of this development for trust in business.

What Does The Model Mean for Trust in Business?

The ‘platforms’ I refer to are basically marketplaces where customers and businesses can trade according to rules set in place by the platform owner. Back in the ‘old days’ of global trade we typically referred to these as trading posts, entrepôts, or emporia, actual physical sites where goods were bought and sold. More recently, digital technology and the mobile internet have led to powerful on-line platforms that blend characteristics of a portal and a marketplace. Platforms can be based on different business models and offer quite varied types of services. And their footprints in the global economy seem to be expanding every day. What are these platforms and what has made them so influential?

One growing variant of the phenomenon is the data platform, an entity that gathers enormous quantities of data, analyzes it, and then offers the results to other companies for their own commercial uses. One example of this variant could be Nest, part of the Google family of companies held by Alphabet. Another type of platform would be e-commerce sites like Amazon and eBay, which fulfill the classic marketplace function by bringing buyers and sellers together. Uber and Airbnb serve a similar function for taxi and lodging services, respectively. Operating systems may create the rationale for a platform: consider Android, Windows, and the iOS operating system that operates many of Apple’s mobile devices. Last but certainly not least, there are the booming social networks like Facebook, LinkedIn, Twitter, and WeChat in China.

How did platforms like these become such important players in the global economy? A 2016 Schumpeter piece in ‘The Economist’ explains it in terms of economic advantages that successful platforms have over their smaller, more diffuse competitors: “These modern platforms have three things in common. They are ‘multi-sided’, meaning they have more than one group of customers. They exhibit strong ‘network effects’: a growing group of one sort of customer attracts more of the other, which again draws in more of the first and so on. And they are controlled by one company, which can dictate the terms of trade, such as what type of businesses are allowed on its digital property and what they have to pay for the privilege.”

In my next post I will drill down on several of these ideas: ‘network effects’, and particularly the platforms’ power to dictate the ‘terms of trade’ on ‘digital property’. I believe these concepts have a bearing on how we should think about trust in business and the evolving platform economy.

Good luck, and until next time…