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 :
Director of the Telecom Strategy Business Unit,
DigiWorld Yearbook project leader, IDATE
Digiworld Yearbook 2013
What is the future of telcos Business models ?
Increasingly stiff competition, particularly in Europe, and the growing role of the internet and OTT (over-the-top) services, has upset the telco industry. Revenue from calling minutes is tumbling, data traffic is exploding and NGN (LTE and fibre) rollouts require massive investments. This is the backdrop, then, against which telcos are having to consider the future of their business models.
Creating more value from access
They do have certain leverage to deal with this change, starting with creating more value from network access now that OTT services are increasing user consumption. NGN technologies allow telcos to increase speeds (‘best network’ strategy) and to introduce noticeable quality improvements, both of which can differentiate their offerings. The challenge now is to increase data revenue, smartphone and tablet use and to extricate themselves from the price wars raging in certain national markets. So we are starting to see new pricing strategies emerging, with per-minute charging being replaced by new ways of creating value from access and data: tiered pricing based on speed and access quality, data-sharing options between multiple devices and/or users, and bundles that include optimised access for a group of applications.
Other than necessary investment in infrastructure, implementing these innovative approaches also requires significant effort in upgrading software tools (OSS/BSS) in order to control traffic and usage in real time, and to provide the flexibility required for policy management and real-time charging.
Also worth underscoring is that operators see the migration of IT architectures to the cloud and the proliferation of connected objects (machine-to-machine, the internet of things) as major opportunities to earn back on some of their spending on access.
Moving toward two-sided markets
Alongside this strategy, telco services can take two approaches:
• adding value to access and using a two-sided market approach, by enhancing wholesale services: telco CDN,
• API agreements (billing, geolocation and others)
• beyond access, by relying on certain assets that underpin their originality. For example, value can be created from the personal information available through their consumer relationship, either by optimising their own offerings (downstream side in the two-sided structure), or by selling analytics services to third parties (upstream side).
The challenge is therefore to find the right balance so as not to destroy the image—and the value that comes with it—of a ‘trusted third party’ that consumers have of them. There are also increasing opportunities with regard to services. Operators can harness the creativity found in start-up companies, as seen with Telefónica Digital) while managing the risks of destabilising agreements that would likely be signed with major OTT players. They can also enter into collaborative projects, with players from user sectors (particularly within vertical markets), or between themselves to define applications deemed strategic (NFC and payment) or related to traditional interpersonal communication (see joyn RCS services). In particular, this would involve challenging the proprietary solutions developed by device manufacturers.
Industry reorganisation in the medium or longer term
These changes to business models tailored to operators’ specific assets could be accompanied by a consolidation of the telecommunications landscape in the more or less long term, particularly in Europe which has been singularly hard hit by the economic crisis and by having an extremely fragmented market. It is possible that the new round of mergers in the US could make its way to this side of the Atlantic, or result in a series of infrastructure sharing and pooled investments.
Maintaining the status quo could, on the contrary, only speed up European telcos’ loss of power, impede the development of NGN and, ultimately, result in their being taken over by carriers from the US or one of the powerful emerging economies.
About the Digiworld Yearbook
197 pages that deliver the finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.
the DigiWorld Yearbook is published in English and French and available in print and PDF format. An iPad edition, developed by Forecomm, is also available.
The 2012 edition can be downloaded for free
The 2013 edition is available for purchase. Print: €99.99, incl. VAT; PDF and iPad: €54.99, incl. VAT
- You can have a look at the digiworld yearbook 2013, purchase it or even download the 2012 version for free at : www.digiworld.org/yearbook/