The idea that internet platform businesses are anti-competitive is the opposite of the truth
The disruptive impact of digital platforms on the traditional news industry offers the best case study for understanding the economics of the Internet. Everywhere we look newspapers are losing market share, laying off workers and, in some cases, moving to digital only editions. At the center of this and most other Internet-driven disruption is the multi-sided, digital platform. Some policymakers seem unable to get their head around the basic economic principles of platforms. Everywhere, politicians, regulators and commentators express anxiety about them. They are accused of cornering markets in personal data, thereby threatening competition, of invading privacy, facilitating fake news, enabling extremist propaganda and more. None of these anxieties is well founded. When it comes to privacy, fake news, and extremist propaganda, regulators and platform companies are in the business of striking balances. Is extremist content being removed quickly enough? Is fake news being flagged as ‘unverified’? Do consumers understand how their data is being used? But the idea that platforms threaten competition is not only ill founded, it is against the interests of the very people competition law is supposed to protect, consumers.
Before we consider what, if anything, should be done about Internet platforms we should understand what they are. Most people see a consumer transaction as a two-sided affair. We, the consumer, pay money and they, the company, give us something in return. But markets can have more than two sides. Since the middle of the 19th century markets with three and more sides have come into being. These include shopping malls (1847), free newspapers (since 1885), and commercial radio stations (1920). These are “free” to access because we, who find them useful, aren’t paying. The businesses that advertise in free sheets and on radio stations pay the publishers and broadcasters. We read and listen at their expense. Retailers pay shopping mall owners so that we can shop with more convenience in one place.
Internet-based multi-sided markets are usually known as platforms. But both the pre-digital and digital varieties have two important characteristics. First, offering one side free participation helps the overall market to grow quickly. Second, greater participation by one side of the market makes them more valuable to all sides. A luxury shopping mall that attracts all of the leading stores in every sector will likely attract more high-spending consumers. And a radio station that increases its listeners is, similarly, more valuable to its advertisers.
But it is the Internet that has brought multi-sided platforms into their own, creating not only the best known U.S. companies but many other giants from around the world. Running on an Internet backbone that includes search engines, APIs (computer code that connects devices to internet services), payment systems, and powerful consumer feedback channels, these platforms generate powerful benefits for all of their sides. Google Android, the mobile phone operating system, for example, is a platform whose sides include, consumers, mobile carriers, app developers, and online businesses. The India-based food ordering and delivery platform, Swiggy, provides not only high quality meals on demand but also enables thousands of independent food producers and delivery workers to provide their services to consumers they would otherwise never meet.
Platforms have succeeded not just because they have taken consumers away from traditional businesses. They have created economic value and consumer relationships that never before existed. An Airbnb host in Prague can unlock the value of her apartment by renting it to a tourist from Africa who, otherwise, could not afford to visit Europe. Facebook allows people to communicate, share information, and get news for free while providing advertisers with access to target groups whose interests and consumer preferences are known. No other organisational model could do this. For millions Internet platforms make earning a living possible. For billions more they make a better life affordable.
So what is the role of data in all of this? Much digital ink has been spilled in attempts to answer this question. The current favourite is that data is the new ‘oil’—the fuel of the post heavy-industrial economy and that the Internet giants are like so many anti-competitive Standard Oil corporations. This idea, endorsed by The Economist, is problematic. First, unlike oil, data is non rivalrous. Consumers can give their data to many companies. And the decision as to who gets it is the consumer’s. The Economist and others who take this view are taking a snapshot of an early stage in an evolutionary process that has a very long way to go. The Internet giants have moved first into those parts of the economy where bigger means better for consumers. Facebook, for example, is an information and interaction exchange. It was not consumers who made Standard Oil dominant in the 1900s. But when it comes to Facebook consumers wouldn’t have it any other way. Data can be described as the new ‘oil’. But only in the specific sense that explains its role in our recent economic history. If we compare the growth of Internet platforms to the early years of the space programme, then data has been the fuel that allowed new business models and consumers’ expectations to escape the gravity of cost and, thus, the tyranny of unaffordability.
But if Internet platforms have a prime mover it is consumers. Consumers are, in fact, their co-creators. This is why the comparison with Standard Oil does not stack up. Compared with traditional businesses digital multi-sided platforms offer consumers the kind of power which, before the Internet, belonged only to the very rich. The ability to tailor travel and accommodation, to buy almost any kind of product from anywhere in the world, to communicate at no cost, and to be confident that their feedback is decisive in ensuring that they get what they pay for has given consumers the real power. The fuel that has driven the growth of platforms, data, has been willingly provided by consumers in return for a huge measure of control over how internet businesses operate. And these benefits include data that consumers have gotten in return. Consumers know about alternative products and services. They can compare prices at the click of a mouse. And they can communicate with other consumers online. And when companies misbehave it is the severe financial consequences of consumer feedback and withdrawal of custom that forces them to think again. That consumers see themselves as primary stakeholders in Internet businesses should not be lost on us.
Regulators and economists are right to ask questions about the role of data in the Internet economy. Should it be protected? Yes. Are consumers being harmed by new platform-style economic models? Not that anyone, least of all consumers themselves, can see. Could problems of market dominance arise in the future? Maybe. The best approach is for regulators and policymakers to listen to consumers. As it is the main impetus for the regulation of data as a competitive good is coming not from them but from industries who need better ideas than calling regulators down upon their competitors. It’s not about the oil. It’s about who rules in the digital world. Consumers.