Year after year, the economic and financial power of the GAFA quartet of Internet platforms continues to increase. Which brings two questions back to the fore, again and again: what trends might emerge to counter this seemingly inexorable rise? And do we need regulations that apply specifically to platforms?
A quick reminder of what economists mean by platform economics (digital or not): multi-sided markets (i.e. involving interactions between two or more parties) with reciprocal “network effects”. So the more iPhones that Apple sells, for instance, the more attractive its app store becomes to developers (and so to users), and vice-versa. In digital sectors, this characteristic is typically combined with a reduction in fixed costs (software), generating increasing returns as the platform becomes more successful.
Network effects usually go hand in hand with another property: asymmetrical prices. If Apple is starting to earn substantial income from the App Store, its business model and profits are rooted chiefly in the high price of its iPhones. With ad-funded models, one side of the market operates as a free service. As we have seen with Apple, digital platforms are a very efficient means of fostering open innovation, and capitalising on innovations from third parties. All of these aspects, which go some way to explaining why “winner takes all” when it comes to platforms, naturally need to rely on the ability to maintain the role of intermediary, and continue to become more proficient at it. Otherwise, the platform’s customers and suppliers will begin to adopt multiple homes, before eventually moving on to another, better platform. The efficiency of the leading platforms is the very reason for the current ambivalence over how much they are serving the greater good. On the one hand are concerns that a dominant OS will abuse its position while, on the other, this popularity can also mean an opportunity for developers, and can have positive repercussions for consumers.
The dichotomy needs to be resolved by taking account of the Internet’s dynamics as a whole. Windows has been through a number of anti-trust investigations but, today, this is the mobile Internet which has moved down the priority.
Worth reading on this topic is the recent IDATE report on "The future of the Internet: 2025". It takes a detailed look at the key technologies for the coming years, and especially at how development scenarios will be shaped by key variables, such as the openness of the Internet ecosystems, or the impact of restrictive privacy or security-related public policies. Here, we will add two other events that take us beyond a GAFA-centric environment. First, 2014 saw a number of Internet powerhouses emerge from the shadows of the GAFA quartet: in China (Alibaba, Weibo…) and in Asia’s leading markets in general (Rakuten, Line…).
We cannot entirely discount the possibility of these players gradually coming to compete head on with their Western peers. Second, we need to consider the position held by new players moving into vertical markets, many of which have carved out a place of sector-specific intermediary – Uber and Airbnb being two prime examples – and which have no intention of being taken over by Google or Apple or the like.
Nevertheless, faced with the realisation that GAFA continue to become increasingly powerful, the inefficiency of antitrust laws and the regulatory asymmetries compared to those imposed on other players along the chain, the idea of regulation that applies specifically to platforms is gradually coming to the fore. It may not be a good idea. Competition law, even ex post, is not necessarily ineffectual.
Plus it will be no simple matter to define the contours of the platform sector. And extending existing sector-specific laws, such as those that apply to electronic communications, to make OTT companies and telcos subject to the same principles, would take us down a path where, as businesses become more and more digitised, every economic sector would be more or less governed by electronic communications laws. Keeping in mind that the upcoming review of the EU regulatory framework for electronic communications is expected to focus on network access conditions and interconnection – and probably put more emphasis on symmetrical regulation. Should voice and SMS products not be removed from the scope of the telecom sector’s ex ante regulation, rather than adding in competing OTT products such as Skype, Viber, WhatsApp, etc.?
It nonetheless remains that in sensitive areas for digital industry players, such as those governing contract law, taxation, public safety and privacy, we can very easily identify laws that should apply across the board, such as what we find in consumer products and the retail industry. Without having to produce laws that are specific to platforms, the current juncture could provide an opportunity to merge national legal provisions with regional (EU) and global ones, and to ensure that they apply equally to all players along the value chain
For the publication of the last study about "the future Internet in 2025" and the 15th edition of the DigiWorld Yearbook, IDATE is organizing a conference on the perspectives and key trends that will structure the digital economy for the next decade, DigiWorld Future
More informations about IDATE's expertise and events :
Published in COMMUNICATIONS & STRATEGIES No. 88, 4th Quarter 2012
Privacy, Openess and Trust
Summary of the issue: Information and Communication Technologies (ICT), and the Internet in particular, offer companies the ability to collect large amounts of data about their users, and to use this information as a key input for value creation. New business models based on gathering and aggregating personal data and leveraging big data technologies, lead to innovative market offerings. To become successful, they depend on disclosure (openness) and trust on the users' side. Though the disclosure of personal information might benefit consumers via, for example, better tailored services, openness also creates risks of abuse of personal data, ranging from increasing market power (e.g., due to price discrimination) to privacy breaches by the data holder, or even cybercrime from initiatives of rogue third parties.
Interview with HAL VARIAN
Chief Economist at Google
Conducted by Marc BOURREAU (Telecom ParisTech, PARIS)
> Discover also the interview with Isabelle FALQUE-PIERROTIN, President, CNIL
C&S: What are the crucial dilemmas and tradeoffs with respect to privacy, openness and trust for end users but also for service providers, and the potential risks?
Hal VARIAN: I share all sorts of personal information with my doctor, lawyer, accountant, and bank. Why? Because when they are better informed, they will be able to better help me. The same is true of online information service providers: if they know my calendar, they can remind me of meetings; if they know where I am, they can provide better directions; if they know what I like, they can make better recommendations. The important element is trust. If I provide information to these parties, will that information be used to help me, or will it be used in a harmful way? We have established norms for professional services, but the internet is a new environment, so these norms are not fully developed.
How can we explain the apparent naivety of some consumers and the reluctance of others in the disclosure of personal information, despite the stronger awareness of data usage and related risks? To which extent do service characteristics influence consumers' reaction to information disclosure?
Academic studies have shown very wide dispersion in attitudes towards privacy. Some people are very concerned about privacy and others really don't care much at all. This makes it difficult to have a one-size-fits-all model, which means you must offer people choice. I expect that as people become more familiar with the benefits of information technology, this dispersion will be reduced.
How can firms make sure that users have enough trust so that they will provide their personal data in order to obtain innovative services?
A big brand name firm, like Google or Microsoft, has a lot to lose if they make a mistake in this area so they have a strong incentive to be extra careful in managing user information. Smaller firms may lack the incentives and the expertise to take sufficient care.
Can we expect new models empowering end users with their personal information, around for instance vendor relationship management initiatives?
At Google, we build our policy around choice and control. We believe that organizations should offer the user a choice about what data is collected and that the user should be in control when it comes to their data.
Do big data represent a major disruptive innovation as some argue (e.g., Erik Brynjolfsson)?
Yes, I think that the big data will be disruptive. People will come to expect much more efficient online services. Companies that build trust and can offer such services will have a competitive advantage.
What kind of public policy, if any, is needed to ensure that there will be sufficient trust in electronic markets so that data-demanding innovations can flourish, and how does it influence the value of personal information?
As I mentioned earlier, I think that norms will develop in this area. At this time the important thing is to avoid regulation that will inhibit experimentation and innovation.
To what extent should the government protect children and adolescents from behavior that may bring them trouble much later on (imagine a candidate for a high position who gets confronted with an awkward photograph from younger days, decades earlier)?
This is the toughest question you have posed! I think that the best tool is education, so that young people are made to understand clearly that their actions now can come back to haunt them later.
Hal R. VARIAN is the Chief Economist at Google. He started in May 2002 as a consultant and has been involved in many aspects of the company, including auction design, econometric analysis, finance, corporate strategy and public policy. He is also an emeritus professor at the University of California, Berkeley in three departments: business, economics, and information management. He received his SB degree from MIT in 1969 and his MA in mathematics and Ph.D. in economics from UC Berkeley in 1973. He has also taught at MIT, Stanford, Oxford, Michigan and other universities around the world. Dr. Varian is a fellow of the Guggenheim Foundation, the Econometric Society, and the American Academy of Arts and Sciences. He was Co-Editor of the American Economic Review from 1987-1990 and holds honorary doctorates from the University of Oulu, Finland and the University of Karlsruhe, Germany. Professor Varian has published numerous papers in economic theory, industrial organization, financial economics, econometrics and information economics. He is the author of two major economics textbooks which have been translated into 22 languages. He is the co-author of a bestselling book on business strategy, Information Rules: A Strategic Guide to the Network Economy and wrote a monthly column for the New York Times from 2000 to 2007.
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