The Rise of the Platform Economy | Issues in Science and Technology

Summary

The application of big data, new algorithms, and cloud computing will change the nature of work and the structure of the economy. But the exact nature of that change will be determined by the social, political, and business choices we make.

A digital platform economy is emerging. Companies such as Amazon, Etsy, Facebook, Google, Salesforce, and Uber are creating online structures that enable a wide range of human activities. This opens the way for radical changes in how we work, socialize, create value in the economy, and compete for the resulting profits. Their effects are distinct and identifiable, though certainly not the only part of the rapidly reorganizing global economy. As the work by Michael Cusumano, Annabelle Gawer, and Peter Evans has shown, these digital platforms are multisided digital frameworks that shape the terms on which participants interact with one another. The initial powerful information technology (IT) transformation of services emerged with the Internet and was, in part, a strategy response to intense price-based competition among producers of relatively similar products. IT-enabled services transformation, as our colleagues Stuart Feldman, Kenji Kushida, Jonathan Murray, and Niels Christian Nielsen have argued in other venues, was based on the application of an array of computable algorithms to myriad activities, from consumption and leisure to services and manufacturing. The movement of these algorithms to the cloud, where they can be easily accessed, created the infrastructure on which, and out of which, entire platform-based markets and ecosystems operate. Platforms and the cloud, an essential part of what has been called the “third globalization,” reconfigure globalization itself.

These digital platforms are diverse in function and structure. Google and Facebook are digital platforms that offer search and social media, but they also provide an infrastructure on which other platforms are built. Amazon is a marketplace, as are Etsy and eBay. Amazon Web Services provides infrastructure and tools with which others can build yet more platforms. Airbnb and Uber use these newly available cloud tools to force deep changes in a variety of incumbent businesses. Together they are provoking reorganization of a wide variety of markets, work arrangements, and ultimately value creation and capture.