The platform economy refers to the trend of commerce favouring and moving towards digital platform business models. Platforms are the underlying computer systems that can host services that let customers, businesses, entrepreneurs, and the general public communicate, share resources, and buy and sell goods. Business analysts use this phrase to describe the competitive nature of technological innovation.
Understanding platform economy
According to a McKinsey research, within the coming six years, digital platforms will mediate more than 30% or around $60 trillion in global economic activity. The platform economy is made up of digital platforms, which are built on a business model that creates value by allowing interactions between many participants. Platform businesses come in many different varieties.
According to John Hagel, founder of the Deloitte Center, all the platform businesses fall into one of four categories. These are aggregation platforms, like eBay and Etsy, which collect a variety of useful resources for users; social platforms, like Twitter and Facebook, which encourage interaction among people who share interests; and mobilisation platforms, like Apache and Linux, which concentrate on enlisting participants in a collaborative effort that will take a long time to complete.
Other than Hagel, several other individuals in Silicon Valley have made an effort to distinguish platform businesses. As per Dr. Murat Uenlue of Innovation Tactics, all platform businesses fall into one of the following categories: These platform businesses together constitute the platform economy. In simple terms, a platform economy is one in which platforms facilitate social and economic human activity.
The platform economy has grown over the last ten years, with platforms that offer services like Uber, Zomato, Urban Company, and Airbnb evolving from start-ups to significant businesses. According to estimates, there were 8.5 million service providers using different platforms in 2016, 11.7 million in 2017, and 15 million in 2018. A platform business model is preferred by the majority of companies today because of its quicker development, greater efficiency, and greater potential for creating scalable communities.
The preference for a platform economy is mostly seen in the employment market. Platform businesses are fast becoming the largest employers.
“If some of our growth estimates continue, it will not be too many years before we can be the third-largest source of employment in the country, behind the Army and the Indian Railways,” Sriharsha Majety, Co-founder and CEO of Swiggy said in October 2019. As of October 2022, Swiggy employed 2.1 lakh delivery partners. Similar numbers have been reported by other systems, such as Ola which has a network of 2.5 million driver partners across Asia.
At the same time, numerous industries heavily dependent on linear business models are attempting to extend their use of gig workers and the platform-based gig economy. The banking, financial services, and insurance (BFSI) sector plans to ramp up from 32% to 56%, the manufacturing sector from 35% to 65%, the services sector from 47% to 76%, and technology & BPO from 57% to 60%. The FMCG-pharmaceutical sector expects to increase its gig workforce from 15% to 69% over the next two to five years. Currently, the EdTech sector employs roughly 90,000 gig workers, with the market estimated to reach $3.5 billion to $4 billion by 2024.
Platform economy and workers
The nature of work is shifting because of the platform economy. They are creating a labour market where traditional full-time employment is being replaced by short-term contracts or freelance work. These independent contracts, also known as gigs, typically have a set duration, such as the length of a project or the duration of a particular demand for the business. Over 15 million gig workers were employed in India as of December 2017 in industries like IT, HR, and designing. Many workers have begun to favour freelancing with online platforms over working at regular positions as a result of the growth of the platform economy and numerous gigs.
Unlike regular employment, gig labour gives employees more flexibility regarding their work environment, type of job, hours worked, role, responsibility, and income. Young people who desire greater freedom and flexibility in their careers, as well as to learn new skills and take advantage of new chances, find it particularly appealing.
A gig worker typically has a more dynamic job profile with a wide range of tasks to pick from with each new project having unique components. These facilities frequently entice creatives to freelance jobs. There is also the benefit of low commitment: if a gig worker disagrees with the work they are expected to do, or has a poor relationship with the company, it is very easy for them to leave and seek employment elsewhere.
Due to the fact that most businesses allow gig workers to work remotely, they also stand a higher chance of maintaining a healthy work-life balance. Because of this, homemakers, single parents, and carers who wish to support themselves financially while also taking care of domestic duties find the platform-based gig economy to be appealing. The gig economy offers dynamism, flexibility, freedom, and work-life balance, all of which are significantly limited in traditional employment.
Gig labour is a reliable source of extra cash for many people. Many people who would not have been able to pay their debts on their own have benefited from services like Airbnb, Uber, and Swiggy. It is typical for gig workers to juggle numerous jobs because every platform gives a varied wage to gig workers, with some platforms paying lower owing to the transitory nature of their engagement and others paying higher because they are not required to provide any employment benefits. Financially (it offers many streams of income) and professionally, this is advantageous (diversified skill set). Added to all these advantages is the ease of employment. What gives these platforms an edge over other employers is how easy and quick it is to start working for them. All a person needs is a phone with an internet connection.
The key technologies
The platform economy is built on the algorithmic revolution and cloud computing. But, computer power is just the start of the story. Using algorithms that work with data as their starting point, this computational power is transformed into economic tools. A tapestry of algorithms makes up the software layer that permeates and is entwined with the economy. The Internet of Things, also known as the Internet of Everything or the Industrial Internet, with its implication of webs of sensor networks, is a result of the extension of that software layer and algorithmic fabric to include manufacturing.
The software was once embedded in things, but today, both services and actual items are woven into network fabrics that are based on software. This software layer increases the accessibility of traditional tools and digital tools that are used by and controlled by digital processes while lowering their cost. Also, expenses are reduced by utilising open-source software, cloud computing and storage, and physical venues like those offered by TechShops that let people use cutting-edge industrial-scale equipment. This has a variety of effects, one of which is that it makes entry more affordable for newcomers.
The virtualization and abstraction of computing processes form the foundation of cloud computing. The specifics of how it functions are not important, but what results it gives are. Scale is very important to cloud service companies. The result for users—individuals, small and midsize businesses, startups, and corporations—is a drastically lower cost for computing resources and information and communication technology tools, as well as dramatically fewer usage obstacles. Instead of owning or building full computing systems, users can rent resources as needed. Computing, along with the platforms and applications it enables, is now a deductible operating expense rather than a capital investment.
Digital platforms are complex mashups of operations, networks, operations, and software. The important thing is that they give a wide range of users access to a set of common methodologies, technologies, and interfaces so that they can construct whatever they want on a reliable foundation. These platforms include IOS and Android. They are generally open to app developers, despite the fact that they do place some limitations on the kind of programmes that can be created or sold. Android is also a platform for hardware (handset and other device makers) because the code is open, not just the interfaces. Indeed, platforms can grow on platforms.
Amazon Web Services is used by many of the contemporary Internet platform companies. Numerous of these platforms draw a wide range of additional contributors, and when these contributors are sufficiently numerous, an ecosystem may develop. For instance, complementary firms are starting to appear in the case of app shops. A company called TubeMogul categorises and monitors the reach of YouTube ‘stars,’ AppAnnie ranks the money generated by apps, advertising organisations analyse YouTube ad buying, and there are an increasing number of companies that develop new YouTubers. These ‘complementors’ are powerful allies in building and maintaining the lock-in for the master platform. Of course, building a platform is work, but platforms themselves then generate or organize the work of others by providing digital locations for the connections that organize work and other activities.
A looser definition of a platform is one in which social and commercial interactions are mediated online, frequently using applications. For instance, as far as we are aware, Uber does not yet offer a platform upon which others might build businesses, such as setting up a fleet of pizza delivery services. Uber should be regarded as a company running a platform nonetheless since it is an algorithmic structure that offers a digital market and perhaps an ecosystem, albeit one it controls.
Digital platforms, including online marketplaces like Amazon and internet companies like Google and Facebook, are reshaping more and more sectors of the economy with the help of critical technology like the cloud. The lack of a concrete definition of digital platforms that enables users to define precisely what is in and out of the category makes the topic difficult to understand.
A group of digital online arrangements with algorithms that organise and structure social and commercial activities are simply referred to as platforms. In the context of IT, the word refers to a collection of common methods, tools, and user interfaces that are accessible to a wide range of users and allow them to construct anything they want on a reliable foundation.
Platform economy utopia or dystopia?
The discussion surrounding the platform economy’s effects began during the early stages of the IT revolution, when leaders like Robert Noyce, Bill Gates, and Steve Jobs asserted that they were paving the way for a future that would give rise to new opportunities and prospects. Optimists still abound, and San Francisco is now experiencing what may be its biggest gold rush yet, with investors, entrepreneurs, and data scientists working furiously to create “disruptive” new businesses.
For investors, who are by nature optimists, the question is how to create platforms, draw in users, and then take advantage of the value created by the new ecosystem. No matter the platform, all of them depend on encouraging others to contribute. They all rely on the digitization of value-generating human activities, whether it be Google monetizing searches, Facebook monetizing social networks, LinkedIn monetizing professional networks, or Uber monetizing cars.
According to the upbeat interpretation of the developing techno-economic system, society can be reconfigured with producers transitioning into proto-entrepreneurs who can make use of these platforms and work flexible hours. And this certainly will be the case for many. Similar to this, the utopians contend that platforms like the car-sharing companies Uber and Lyft can reveal the commercial value of underutilised personal assets; other platforms like Airbnb promote the idea that vacant rooms in one’s home or flat can become sources of income whether or not they are technically hotel rooms. Advocates believe that all of this can occur for the greater social good without negative consequences. But are there any repercussions of these new economic arrangements?
For instance, platform companies that match workers with tasks may increase the efficiency of labour markets, but if they spread widely and organise a sizable portion of the work, they are also likely to lead to fragmented work schedules and rising levels of part-time work without the employment-related benefits that previously characterised a large portion of employer-based full-time work. For now, it is not clear whether these digital platforms are simply introducing digital intermediaries or actually increasing the extent of gig or contract work.
Economic consequences
These platforms frequently disrupt the way economic activity is currently organised by raising entry barriers, altering the logic of value creation and value capture, engaging in regulatory arbitrage, repackaging work, or shifting the balance of power within the economy.
How is value created?
A completely new set of economic ties that rely on the Internet, technology, and data make up the platform economy. Each platform’s ecology, which determines the conditions under which users can participate, is a source of value.
Who captures the value?
There are numerous mechanisms, each of which has a different effect on how profits are distributed. While some platforms let the owner ‘tax’ all transactions, others make money from advertising. Platforms can either establish totally new categories of employment or convert duties that were previously carried out by regular employees into those carried out by contractors, consigners, or quid pro quo workers. There are also those who Gina Neff refers to as “venture labourers,” i.e., those that work for platform companies. They are paid well, and if the business succeeds, the platform’s worth will be capitalised on the stock market, creating extraordinary wealth for the firm’s entrepreneurs and direct employees. If the firm falters or fails, these individuals must find new employment.
There is also a rising group of people that provide goods—typically but not always ‘virtually’—for websites like app stores, YouTube, or Amazon Self-Publishing. These people are referred to as ‘mini-entrepreneurs’ or ‘consignment employees.’ Although this phenomenon is as of yet unmeasured, it is evidently producing numerous new opportunities for entrepreneurship even though the vast majority of them are failed or just moderately lucrative.
Consignment economy participants occasionally become so big, especially in apps, that venture capitalists invest in the business and the employees turn into venture labour. Some of these applications might even develop into platforms. To put it another way, there are enormous benefits for participants in the consignment business, but there is also a considerable risk involved.