Digital platforms and ecosystems: remarks on the dominant organizational forms of the digital age

ABSTRACT

What are the principal consequences on organization and management of the ongoing Digital Revolution? This essay examines how value can be created and captured in fundamentally new ways thanks to digital innovation. I propose that digital platform firms and their ecosystems are the emblematic organizational form of the digital age. I present the main implications of the rise of digital platforms and ecosystems on competition and innovation. The paradox of digital platforms in their current organizational form is that while distributed patterns of value creation characterize the circumstances that allowed them to emerge, the business models they have adopted have led to a centralized modality of value capture. This has given rise to salient instances of digital platform firms’ abuse of economic power over their ecosystem members and to widespread concerns on digital platforms firms’ abuse of power on other dimensions, including privacy and labour relations. In my conclusion, I highlight the importance of future research on ecosystems’ governance and call for a careful examination of a platform firms’ responsibilities in society.

KEYWORDS:

• Platforms
• digital
• ecosystems
• ecosystem governance
• digital platforms

Introduction

Technological revolutions give rise to new forms of organisations that are particularly well-adapted to the novel ways in which value can be created and captured under the new technological circumstances. This theory, developed first by the celebrated business historian Alfred Chandler, explained the birth of the modern firm. In his classic Scale and Scope: The Dynamics of Industrial Capitalism (1990), Chandler showed that the modern corporation was born out of the Second Industrial Revolution. Through increasingly integrated and automated manufacturing systems, the modern industrial firm obtained, controlled, and coordinated resources to develop products. With its multi-divisional managerial hierarchies, the industrial firm was uniquely capable of creating value by harnessing the new technological infrastructures of electricity and railroads to operate efficient production processes. The modern industrial firm was the new organisational form that evolved to take advantage of new production techniques. It came to become the dominant organisational form of the industrial age.

For this special issue of IOM on digital innovation, I ask: what consequences on organisation and management can we expect from the ongoing Digital Revolution? I take inspiration from Chandler’s insightful approach: I examine how value can be created and captured in fundamentally new ways thanks to digital innovation. I propose that digital platform firms and their ecosystems are the emblematic organisational form of the digital age. I then briefly comment on the implications of this phenomenon on competition, innovation, and employment. In my conclusion, I highlight the critical importance of future research on ecosystems’ governance and call for a careful examination of a small number of critically important platform firms’ responsibilities in society.

But first, a caveat: we all know what a fraught endeavour it is to theorise on a still ongoing phenomenon. Chandler, after all, wrote his theory 100 years after the events he describes. In this short essay, I do not claim to develop new theory. I simply aim to offer my interpretation of the rise of platforms and ecosystems as the major organisational consequence of digital innovation. Twenty years ago, when I started to explore the topics of platforms, ecosystems, and digital innovation, these themes were not mainstream in management research (see, for example, Cusumano et al., 2019, 2021; Gawer, 2009, 2014; Gawer & Cusumano, 2002, 2014; Gawer & Srnicek, 2021; Jacobides et al., 2018; McIntyre et al., 2020; Shipilov & Gawer, 2020). Over time, this line of research has benefitted from important contributions from a growing community of management scholars from strategy, innovation studies, economics, organisation studies, and information systems which have successfully collaborated across academic communities and silos (Autio et al., 2018; Constantinides et al., 2018; Lyytninen et al., 2020; Nambisan et al., 2020; Parker et al., 2016, 2017; Yoo et al., 2012, 2010).

Platforms and ecosystems as dominant organizational forms in the digital age

The Digital Revolution is ongoing: it brought us computers, then the internet, and more recently, billions of mobile devices and sensors. Together, these digital technologies have created a global techno-social environment of pervasive connectivity and have generated unprecedented opportunities for ongoing data capture. In addition, technological advances in computing, cloud services, combined with artificial intelligence techniques such as machine learning, have immensely increased processing and analysis capabilities.

If the Industrial Revolution enabled massive economies of scale and scope in supply, the Digital Revolution has given rise to economies of a different nature: it has made it possible to identify and exploit complementarities across users, machines, and sectors through the use of data, software, and networks. Digital technologies enable individuals to connect with other individuals and organisations with minimal friction. In addition, companies no longer need to do all their own innovation or own all the assets they provide to consumers. Resources that reside outside the scope of the firm can be exploited and monitored remotely. This has profound implications on the main locus of value creation and capture and shifts it away from the traditional firm and its supply chain to the locus of the digital platform (Gawer, 2020).

The process of digitalisation supports an economy-wide redesign of value creation, delivery, and capture processes (Autio et al., 2018). First, connectivity enabled by digital infrastructures, such as the internet and mobile networks, allows data to be shared, linking objects, individuals, and organisations who consume as well as generate data (Siggelkow & Terwiesch, 2019). Digital technologies rely on re-programmable functionality and repurposable digital devices (Tilson et al., 2010; Yoo et al., 2010), leading to a reduction of asset-specificity. The fungibility of digital assets, such as software, data analytics capability, and installed user-base data, can create opportunities in multiple markets. Complementarities between the processes of data generation, connectivity, and aggregation help reduce transaction costs over time, which impacts firm boundaries and the architecture of the value chain (Adner et al., 2019).

Second, the transition to always-on connectedness has fundamentally changed the way agents or resources can be identified, monitored, and controlled (Adner et al., 2019). In internet-connected and digitalised contexts, resources can be controlled without formal ownership or employment. In fact, digitalisation allows assets and individuals to be monitored and controlled to a degree that was not previously possible. For example, individual drivers can be connected to the web via mobile devices such as smartphones or sensors embedded within a car or an engine; drivers’ movements can thus be tracked and their behaviours monitored.

As Hal Varian, chief economist of Alphabet-Google, explains: ‘Because transactions are now computer-mediated, we can observe behavior that was previously unobservable and write contracts on it’ (Varian, 2014). This reduction in uncertainty helps reduce the need for ownership of resources, suggesting firms can narrow their scope boundaries if they can digitally connect to remote agents and resources to capture data from them, which they can analyse and exploit. We can, therefore, expect the emergence of new asset-light firms that focus on data capture, aggregation, and analysis, requiring little necessity to invest in physical resources.

Digitalisation also creates economic forces that facilitate firms’ expansion of scope. Digitalisation makes market entry easier, as firms that can capture and aggregate data from various sectors can unearth and exploit new kinds of synergies (Seamans & Zhu, 2014, 2017; Yoo et al., 2012). Such data-driven market entry results in the expansion of the scope of digital platform firms.

The evolution of technology has made it possible for companies to collect, store, and use vast amounts of data. The capture and analysis of this data are critical to the business models of most digital platforms. Digital platform firms use information and communication technologies to facilitate interactions between users; they collect and use data about such interactions and generate and take advantage of network effects. These network effects exist when the users’ benefit from engaging with the platform increases with the number of other users. Examples of such online platforms include online marketplaces, app stores, search engines, social media and platforms for the collaborative economy. The affordances granted by digital innovation (Autio et al., 2018; Nambisan et al., 2017) allowed digital platforms to form and grow, sometimes exponentially.

Despite the variety of sectors that they operate in and the diversity of activities they facilitate, digital platforms share common economic, business, and governance characteristics in creating and capturing value. These include the generation of economies of scale and scope and network effects, leading to winner-take-all monopolistic positions. They often use business models involving cross-subsidisation across platform sides and rely on pervasive data generation, data capture and usage. An essential addition to this list of characteristics is that platform firms act as the private regulators of their ecosystems (which include businesses and individual users), effectively running the business relationships, data exchanges, and transactions they facilitate as private turfs.

Online platform firms do not only take advantage of modern digital infrastructures such as the Internet, the Cloud, and global mobile connectivity. They also take advantage of the behavioural habits of billions of users who, by connecting daily to these platforms through their digital devices to consume digital services, continuously (and often unwittingly) generate data. In turn, this data-as-output becomes a key resource that platform companies leverage to enhance further the digital services they offer, develop new services, and enter new markets.

The mechanisms through which digital platforms create value are the following: First, digital transaction platforms facilitate matching. They provide a structure that can take advantage of the low search costs afforded by digital technologies to globally connected Internet users to create efficient matches. Often platforms serve as intermediaries between buyers and sellers. Their success is closely tied to the success of a range of businesses that use platforms to reach customers. Platforms allow firms, especially smaller businesses, to extend their operations beyond their home state, catering for consumers across the global economy. Digital platforms also facilitate innovation. Innovation platforms enable third-party firms such as software developers to build very large quantities of complementary products or services. For example, they facilitate the development of millions of applications that enhance the functionality of foundational products like Microsoft Windows or Google’s Android. Cusumano et al. (2019) propose a simple typology of platforms that focus on how they create value, distinguishing two broad types and a combined hybrid type:

1. Transaction platforms: they facilitate transactions between many individuals and organisations that otherwise would have difficulty finding or tran0sacting with each other and capturing and transmitting data, including personal data, over the internet (e.g., Tmall, Google Search, Amazon Marketplace, MercadoLibre). These organisations reduce search and other transaction costs for billions of users, customers, and providers.

2. Innovation platforms: they serve as a technological building block on top of which innovators can develop complementary products or services (e.g., iOS, Google Android, Linux).

3. Hybrid platforms: they combine characteristics of innovation platforms and transaction platforms. Google, Amazon, Microsoft, Apple, Facebook are all hybrid platforms.

With platforms, value creation is distributed but value capture is centralised

Digital platforms are uniquely positioned to create and capture value in the digital economy. In a global economy where many resources can be digitised and where such resources can be utilised even if they are geographically dispersed, platforms are positioned to facilitate the exchange of those resources and combine them in innovative ways (Yoo et al., 2010). A platform is, by design, a central agent at the nexus of a network of value creators. A platform leader can capture a significant proportion of the value being created in the distributed network, and resources can be monitored, controlled, and used without owning them.

Network effects lead to rapid growth. Under certain conditions, they can also lead to customer lock-in and winner-take-all or winner-take-most market outcomes, which makes it difficult to maintain healthy competition in digital platform markets. Under certain conditions, strong network effects can prevent a superior platform from displacing an established incumbent. These conditions include: (1) when it is difficult or expensive for users to ‘multi-home’ (i.e., for users to use several competing platforms at the same time), and/or: (2) when it is difficult for users to switch away from an existing platform, for example, because of lack of data portability or lack of interoperability. When these conditions are met, platform markets tend to become monopolistic.

The internet once promised to deliver a fairer world, bringing down old power structures, where distributed computing and communication networks provided equal access for all to digital information and economic opportunities (Benkler, 2006). Ironically, and this is the paradox of digital platforms, platform dynamics have led to a concentration of economic and social activity in a small number of large and powerful companies.

Most digital platforms act as private regulators of their ecosystems. They establish the rules through which their various users (be they individuals or organisations) interact, decide what behaviours to encourage or discourage on the platform, and choose how to enforce them. As such, they design the business environment and exercise significant control over members of their platform ecosystem. This rule-setting function is part of what some called ‘platform governance’, which also includes enforcement of such rules. This governance is an essential part of what platform companies do, and it can generate significant value for users of the platform. Good platform governance is a balancing act between creating value for multiple sides of the platforms, when these may have divergent incentives.

For innovation platforms, an important objective of governance is to ensure the quality of complements and clarify who can connect to and innovate on top of the platform. Good ecosystem governance encourages lots of innovation and allows complementors as well as users to benefit in a sustainable manner. Examples of such rule-setting include regulating access to and exclusion from a marketplace; regulating the ways in which sellers can present their offers; which data and Application Programming Interfaces (APIs) users and developers can access; setting up grading systems; regulating access to information that is generated on the platform; imposing standards for delivery and return policies; imposing price controls and so-called ‘Most Favoured Nation’ clauses.,

Parker et al. (2016) indicate: ‘In the complexity of the governance issues they face, today’s biggest platform businesses resemble nation-states. With more than 1.5 billion users, Facebook oversees a “population” larger than China’s. Google handles 64% of the online searches in the US and 90% of those in Europe, while Alibaba handles more than 1 trillion yuan (162 billion US dollar) worth of transactions a year and accounts for 70% of all commercial shipments in China. Platform businesses at this scale control economic systems that are bigger than all but the biggest national economies.’ A fundamental difference between nation-states and platform businesses is that the rules of governance of digital platform ecosystems are set up by the platform firms that are private enterprises and are not subject to democratic governance processes.

The governance of platform ecosystems is not limited to hard rule setting. For platform firms, it also consists in sending credible commitments to ecosystem members so that they continue to be affiliated with the platform. This is especially important when platforms face competition from other platforms.

When platforms are not dominant, users can choose to abandon the focal platform and migrate towards other platforms if the rules of the focal platform do not suit them. However, when a platform becomes dominant or monopolistic, the role of the platform as a private regulator can become problematic. For example, a dominant platform that allows buyers and sellers to transact and sells directly to buyers can have incentives to abusively apply self-preferencing, i.e., giving preferential treatment to its own products services.

How platform firms govern their ecosystems is thus becoming a central question. Governing ecosystems also entails how platform firms deal with users personal data and how they protect their privacy. Digital platforms’ ever-increasing collection and analysis of quantified data creates privacy risks that can affect individual users and have implications for society.

Consider, for example, digital platforms’ ever-increasing capture and analysis of health data, as topic discussed by analysts of the Google-Fitbit acquisition (Bourreau et al., 2020; Caffarra & Valletti, 2020). Critics warn of the significant concerns that the ever-increasing collection and analysis of quantified data about health, termed ‘datafication’, can have. A report by the Ada Lovelace Institute (2020) warns that: ‘Datafication raises significant concerns: it makes individuals’ health legible to a broad array of actors outside recognised medical and clinical settings, giving those with the appropriate digital tools an increased ability to know about, and engage with, people’s health through their data. Datafication also creates increasingly comprehensive and quantified renderings of health, creating the conditions for disempowerment and providing unprecedented opportunities to monitor and influence people.’

These concerns resonate with those expressed by the influential critics Lanier (2010, 2018) and Zuboff (2015, 2019). They offer fundamental critiques of the logic of ‘datafication’ of human activities and claim that it profoundly affects, for the worse, humans and society. These concerns, which can be regrouped under the umbrella term of ‘surveillance capitalism’, have focused on the consequences for humans of engaging continuously and often unwittingly with organisations (the digital platforms) which appear to offer them ‘free’ services, whereas users are in fact enrolled into pursuing another goal, the platforms’ goals, who aim to manipulate users’ behaviours for the benefit of paying third parties. Zuboff (2019) contends that these economic mechanisms can threaten core values such as freedom, democracy, and privacy.

Digital platforms whose business models are advertising-based receive specific kinds of criticisms. The criticisms hone on the fact that such platforms capture and monetise user-generated data in ways that can generate huge profits, while end-users are not always aware of the role they play in a system that instrumentalises them and uses them and their behaviours as an input, in a business logic fuelled by strategies of data-extractive businesses. For example, Lanier called advertising-based social media platforms’ behaviour manipulation empires’ and ‘algorithmic behaviour-modification’ systems where ‘everyone who is on social media is getting individualized, continuously adjusted stimuli, without a break, so long as they use their smartphones. What might once have been called advertising must now be understood as continuous behaviour modification’. He argues that ‘what has become suddenly normal – pervasive surveillance and constant, subtle manipulation – is unethical, cruel, dangerous, and inhumane’. Lanier comments on the ‘dopamine hits’ that create users’ ‘addiction’ with social media platforms, and he assesses that it threatens free will (Lanier, 2018).

The privacy of consumers on digital platforms is pervasively violated by digital platforms. For example, Facebook’s eagerness to get third-party apps connected to its network has led to mass data leaks, exposing sensitive information from hundreds of millions of people, as in the so-called Cambridge Analytica scandal. Facebook also eventually merged the infrastructures of Facebook Messenger, WhatsApp, and Instagram, after having promised years prior that it would not, which raises privacy questions around how users’ data may be shared between services. WhatsApp historically required only a phone number when new users signed up. By contrast, Facebook and Facebook Messenger ask users to provide their true identities. Matching Facebook and Instagram users to their WhatsApp handles could harm those who prefer to keep their use of each app separate. Germany’s competition regulator responded to this announcement by prohibiting Facebook from combining data from different sources (such as WhatsApp or Instagram) with data from Facebook.com without a user’s explicit and voluntary consent (Scott Morton et al., 2019, p. 66).

Digital platforms also use so-called ‘dark patterns’, which are user interfaces that make it difficult for users to express their actual preferences or manipulate users into taking actions that do not comport with their preferences or expectations (Forbrukerrådet, 2018). Examples of dark patterns abound in privacy and security. For example, Google Maps repeatedly asks users whether a site they regularly return to should be labelled ‘home’ or ‘work’. If the user agrees to label the geolocation, then the pop-up queries will cease. If the user clicks on ‘Not Now’ then, there will be more queries a few days later. The result is that the application may be so persistent in asking users to confirm personal information that they will eventually relent to prevent further nagging, not because they want to share this information (Scott Morton et al., 2019, p. 210). Platforms, for instance, sometimes design technologies and user interfaces that leave users with no choice, restrict their choice or provide them with insufficient or deliberately biased information to make informed choices. Proposals for regulators have been formulated that platform-designed user interface technologies and services should not aim to manipulate users into restricting their choices, mislead them, or elicit addictive behaviour (see, for example, Marsden & Podzun, 2020, pp. 46–47).

Privacy risks go beyond just the immediately collected data and extend to an even broader range of inferred pieces of data about individuals. Platforms can use big data, algorithms, predictive analytics, models, and machine learning, exploiting raw collected data to create more and more inferences about individuals. In one of the more infamous examples of these techniques, an angry father confronted the retail store Target demanding to know why they had been sending his teenage daughter coupons for pregnancy-related items. It turns out that Target’s systems had been able to (correctly) infer from the daughter’s online activities that she was pregnant – a fact the father was in the dark about. Such examples have only proliferated in the nearly ten years since that story emerged, demonstrating the importance of considering privacy when it comes to inferred data. These inferences are in turn used to manipulate, assess, predict, and nudge individuals – often without their awareness and nearly always without any oversight or accountability. Moreover, research has repeatedly shown these sorts of systems to be plagued by biases and inaccuracies (Wachter & Mittelstadt, 2019)

Shifts in the regulatory landscape

Digital platform firms are among the most valuable firms in the world. The combined market capitalisation of just four companies, Alphabet-Google, Amazon, Apple, and Facebook exceeded $5.7tn in December 2020, an amount greater than the total market capitalisation of the entire Euronext stock exchange and a third of the value of the whole Standard & Poor’s 100 index of US stocks. Besides, platform companies make up between seventy percent of all ‘unicorns’ – privately held companies with valuations exceeding $1 billion, including Ant Financial, Didi Chuxing, Byte Dance, and Airbnb. The ‘Big Tech’ platform firms – Apple, Amazon, Google, Microsoft, Facebook – have become so large that they are wealthier and more influential than many countries. Google and Facebook dominate two-thirds of digital advertising. Google controls about ninety percent of Internet search in most markets (except China) and about eighty percent of smartphone operating systems with the free Android OS. Apple has captured ninety percent of the world’s profits in smartphones and a large percentage of digital content sales with iTunes. Amazon presides over more than forty percent of e-commerce in the United States and dominates e-books. Microsoft owns more than ninety percent of the world’s PC operating systems. Intel provides eighty percent of the microprocessors for personal computers and more than ninety percent of the microprocessors for Internet servers. Facebook accounts for approximately two-thirds of social media activity.

The Covid-19 pandemic has also increased the reliance from individuals, businesses, and governments on online platforms. The pandemic also sharpens the focus on the trade-offs that policy-makers face when attempting to balance privacy protections with public health. This risk is increased by the extreme reliance on a small number of digital platforms. Contact-tracing apps, associated with systematic testing, have been touted as a promising solution to limit the spread of the virus. This type of surveillance raises serious concerns as it poses significant risks to privacy, civil rights, and civil liberties. The Covid-19 global pandemic has impacted nearly every aspect of work, but platform workers have been particularly hard hit due to their precarious position. As a result of their employment status as self-employed, these workers have been excluded from things like sick pay, unemployment benefits, and most government schemes related to coronavirus. While employees have seen extensions to sick leave and unemployment leave, as well as the widespread adoption of various short-time work schemes, platform workers have largely lacked access to these provisions. This lack of social protections means that workers have often had to choose between working or going into poverty (Gawer & Srnicek, 2021).

The ‘Big Tech’ platform firms have reached unprecedented levels of economic power as whole ecosystems of firms have come to rely on them. They have reached positions of absolute centrality in the digital economy. The question of their dominance has become salient enough not only for regulation authorities to attempt enforcement of existing laws but also to trigger a serious consideration of a regulatory change in Europe and elsewhere. The issues identified include anti-competitive practices, mass-harvesting of user data, and failure to tackle illegal or harmful digital content (see the report by Gawer & Srnicek, 2021 for the European Parliament for a detailed analysis of these issues).

In this context, the regulatory landscape is shifting. Several influential reports in Europe, Australia, and the USA, have contributed to informing regulatory agencies on these issues of digital platforms’ instances and methods of abuse of power. For example, Crémer et al. (2019) in their ‘Competition Policy in a Digital Era’ report for the European Commission indicates that ‘because of their function as regulators – dominant platforms have a responsibility to ensure that their rules do not impede free, undistorted, and vigorous competition without objective justification. A dominant platform that sets up a marketplace must ensure a level playing field on this marketplace and must not use its rule-setting power to determine the outcome of the competition’.

In the US, in the influential Stigler report, Scott Morton et al. (2019) suggest that the power of digital platforms can also be revealed in the technological interface design with which users have to interact when using the digital service: they call this ‘power of defaults’. Consumers’ default behaviour can have a profound impact on the shape of competition in both search and social media. For example, defaults play an important role in influencing consumers’ use of search engines. Default settings and how choices are presented to consumers have a strong influence on the ability of platforms – particularly social media platforms – to collect users’ data and, in turn, users’ ability to control the use of their data. The Stigler report indicates that behavioural economists have revealed users’ prevalent behavioural shortcomings and biases in real-time. Framing, nudges, and defaults can direct a consumer to the most profitable choice for the platform. Consumers tend to stick with default options. If forced to choose, they opt for the most salient alternative. Highlighting an option in red or putting it in the first position nudges consumers in that direction.

In the US again, another influential report, published by the US House Judiciary Committee (2020), reported the results of a bipartisan investigation led by the Subcommittee on Antitrust, Commercial, and Administrative Law into the state of online competition. It focused on the dominance of Amazon, Apple, Facebook, and Google, and their business practices to determine how their power affects the economy and democracy’. Based on extensive collection and analysis of evidence, it founds that despite the important differences across these four firms, their business practices revealed common problems. Specifically, it found that ‘each platform now serves as a gatekeeper over a key distribution channel. By controlling access to markets, these giants can pick winners and losers throughout our economy. They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them. Second, each platform uses its gatekeeper position to maintain its market power. By controlling the infrastructure of the digital age, they have surveilled other businesses to identify potential rivals and have ultimately bought out, copied, or cut off their competitive threats. And, finally, these firms have abused their role as intermediaries to entrench further and expand their dominance. Whether through self-preferencing, predatory pricing, or exclusionary conduct, the dominant platforms have exploited their power to become even more dominant’. The US Judiciary Committee report further notes’ numerous businesses described how dominant platforms exploit their gatekeeper power to dictate terms and extract concessions that no one would reasonably consent to in a competitive market. Market participants that spoke with Subcommittee staff indicated that their dependence on these gatekeepers to access users and markets requires concessions and demands that carry significant economic harm, but that is ‘the cost of doing business given the lack of options’. The report also claims that the platforms’ dominance carries significant costs. ‘It has diminished consumer choice, eroded innovation and entrepreneurship in the US economy, weakened the vibrancy of the free and diverse press, and undermined Americans’ privacy.’ (US Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, 2020). After ‘years of inaction’ on the part of US antitrust authorities, in Q4 2020, attorney generals of more than 30 US states launched an antitrust lawsuit against Google, interpreted by analysts as ‘the opening salvo in a battle to restrain Big Tech’ (Waters et al., 2020). The new Biden administration nominated in senior roles at the Federal Trade Commission Lina Khan and Tim Wu, both vocal critics of the power of digital platforms (Khan, 2017; Wu, 2017).

Meanwhile, after ten years of antitrust lawsuits against Google, the enforcement of antitrust in Europe has been criticised as having taken too long, and its remedies criticised as ineffective (Marsden, 2020). The enduringly stable, very large market share of incumbent platforms suggests a failure of allowing new entrants to contest these markets. Partly in response to these criticisms, the European Commission has recently developed a regulatory agenda on online platforms to create a trusting, lawful and innovation-driven online platforms environment in the EU. While most applicable policies and regulations were not designed explicitly for online platforms, in 2019, the EU introduced a new EU regulation, the Platform-to-Business (P2B) Regulation. This P2B Regulation was specifically aimed to promote a better trading environment for online platforms’ business users, resolve problems associated with unfair practices between online platforms and their business users, and promote transparency in these business relationships. The European Commission also created an Observatory of the Online Platform Economy in 2018, which monitors the platform economy’s evolution to support the Commission’s work on online platforms.

In December 2020, the European Commission unveiled its proposals for a new Digital Markets Act (DMA) and a new Digital Services Act (DSA). These two legislative proposals aim to achieve two main goals: (1) to create a safer digital space in which the fundamental rights of all users of digital services are protected; (2) to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally (European Commission, 2020a, 2020b).

The Digital Markets Act (DMA) proposal proposes to regulate the behaviour of core platform services acting as gatekeepers. Gatekeepers are those platforms that serve as an important gateway between business users and their customers and enjoy a significant and durable market position. The DMA regime is intended to complement existing competition rules, address conduct on an ex-ante rather than ex-post basis, more quickly, and deal with practices that fall outside the competition rules (or they cannot effectively address that). The Digital Markets Act imposes several prohibitions and obligations on gatekeepers, such as the prohibition to discriminate in favour of own services and obligations to share data that is generated by business users and their customers in their use of the platform.

The proposal for the Digital Services Act (DSA) has a wider scope (applying to all digital services that connect consumers to goods, services, or content) and will, if adopted, introduce new obligations relating to issues such as illegal content, transparency, and traceability of business users. The DSA, if adopted, will change the rules for the handling of illegal or potentially harmful content online, the liability of online providers for third-party content, vetting obligations of third-party suppliers and the protection of users’ fundamental rights online. This makes the Digital Services Act relevant not only for all digital service providers (social media, online marketplaces, online platforms, etc.) in the EU but also for their business users and customers.

Conclusion: platforms – from foundations to bottlenecks?

New technological and economic forces associated with digital innovation are increasingly giving rise to the new organisational forms of digital platforms and ecosystems. The ‘Big Tech’ platform firms are the poster children of the digital economy. They have managed to exploit what is unique about digital innovation by tapping into the distributed value creation afforded by pervasive networks and connectivity and business models that allowed concentration of value capture. The danger of digital platforms is that as some of them become dominant, they lose sight of what made them earn their position of centrality in the first place. Platforms earn their place by acting as foundations of innovation or central actors facilitating exchange across sides, but once markets tip, platform firms often find it very hard to resist the temptation to become bottlenecks and over-exploiting their position of centrality. Therefore, the very centrality of digital platforms creates a paradox: they derive their usefulness from being central to networks of stakeholders, and that position creates the opportunity for them to engage in exploitative behaviour. This, in turn, threatens the sustainability of the ecosystem in the long run while triggering resistance through grassroots social movements and regulatory actions.

Theoretical concepts and frameworks in the economic theory of industrial organisation have shaped regulation and continue to do so. The rise of platforms and ecosystems in the digital economy raises questions about the extent to which current economic theory that used ‘market’ as the fundamental unit of analysis might not be the best or even the appropriate unit of analysis to interpret the behaviour of online platforms correctly. Whereas the distinction between market sectors, or between industries, used to be stable and meaningful, online platform firms appear to be able to ‘glide’ from market to market, as if the boundaries between markets were somehow porous or permeable to them. As digitalisation enables the generation of data-driven complementarities across markets, products and services, a better unit of analysis might be an ecosystem that can cut across markets or sectors. More research is needed on platforms’ behaviour in ecosystems over time and how ecosystems develop, coalesce, compete, and evolve.

Digitalisation and pervasive connectivity, combined with big data analytics, also profoundly transform the very nature of what firms are and do. Pervasive surveillance allows remote monitoring of workers and enables control of individuals’ work without resorting to usual contractual mechanisms such as labour contracts or usual managerial techniques based on proximal oversight. It allows the identification, monitoring, and exploitation of resources that reside outside the firm’s usual scope, allowing platforms to make new kinds of strategic decisions to design their boundaries in line with their business models. One promising area of research focuses on digital platform boundaries. For Gawer (2020), platform boundary design consists of the structural decisions that platform firms make to strategically demarcate their resources and assets, which they govern in different modes, with digital platform firms making choices on three interrelated but distinct types of boundaries, including not only on the traditional question of (1) the scope of the firm (what assets are owned, what labour is employed, and what activities are performed by the firm), but also: (2) on the configuration and composition of the platform’s sides (which distinct groups of customers have access to the platform), and (3) on its the digital interfaces that specify the 2-way exchange of data between the platform firm and each of its sides (Gawer, 2020).

Therefore, how platform firms will govern their ecosystem of stakeholders will be structured by their design decisions on their digital interfaces. This may become, to some extent, regulated or subject to self-regulation (Cusumano et al., 2021). The extent to which platforms will continue to capture data in ways that are often opaque and to present choices deliberately designed to be manipulative will have significant consequences on the societal backlash that Big Tech platforms are currently undergoing.

The current backlash against Big Tech platforms is gaining momentum, and some worry that it may be overblown. The sharpest criticisms against digital platforms go far beyond critiques of anti-competitive behaviour. Rather, they cut to the core of societal values and aim to preserve fundamental human rights. When platform firms survive the early stages of competition and succeed in achieving a gatekeeper or dominant position, pursuing an overarching business objective through a logic of ‘datafication’ of human beings’ activities and characteristics deserves lucid criticism. Users should not be reduced to being sources of data and deliberately manipulated by platform firms to prevent them from making legitimate decisions or making decisions contrary to their interests. As Marsden and Podszun (2020) put it, ‘users merit a particular respect as human beings’. A promising proposal is to uphold as a constitutional principle the sovereignty of human decision-making. I have agreed in my Gawer and Srnicek (2021) report with Marsden and Podszun that in the digital world, users’ sovereignty to make their own decisions need some special attention and should therefore be included in a platform regulation.

A broader view of the issues discussed in this paper is that, taken together, they reflect a mismatch between the novel forms of industrial organisation that digital platforms and ecosystems are and the legacy institutional and legal environment in which they operate.¹ This mismatch and the regulatory reaction that ensues do not constitute a historical exception but rather a historical regularity (Cusumano et al., 2021). Let us recall that most profit-seeking firms, not only digital platforms, often aim to evade regulatory strictures and take as much advantage as possible of the circumstances of their environment. While in the early days of new sectors, incoming firms often adopt aggressive behaviour and push the envelope of what is possible, these behaviours are usually not sustainable. What we are witnessing is an inflexion point, which raises opportunities for action.

Therefore, I believe that the recent observable backlash against Big Tech platforms may not be entirely negative. It fuels momentum towards a societal correction and generates conditions of negotiations and exchange between different parts of society with potentially divergent objectives, opening up the possibility of fruitful dialogue. This time constitutes, therefore, a particularly opportune moment. The current vibrant exchange in the process of new regulation being examined in Europe between firms big tech platforms, small platforms, firms from traditional sectors, be they large or SME, civil society, academics and regulators, is very promising. It reveals new forms of abuse and highlights gaps in current regulation. It also provides opportunities for regulators and scholars to understand better the workings of these new organisational forms. It also provides an arena where existing rights can be reaffirmed in this new context and where new rights can be assessed and perhaps formulated. For example, as we have seen earlier, digital platforms can use big data, algorithms, predictive analytics, models, and machine learning to create more and more inferences about individuals. These inferences, plagued by biases and inaccuracies, are, in turn, used to manipulate, assess, predict, and nudge individuals – often without their awareness and nearly always without any oversight or accountability. Proposals that platforms should offer users a new kind of rights, the ‘right to reasonable inferences’, and to curtail the generation of ‘high-risk inferences’,² are beginning to get traction (Wachter & Mittelstadt, 2019).

In conclusion, the global process of digitalisation and pervasive connectivity has given rise to a new emblematic organisational form, that of the digital platform firm and its associated ecosystem. Such platforms operate as digital intermediaries across interconnected sectors and markets subject to network effects. These firms have grown to an unprecedented scale, propelled by data-driven business models. Online platforms have a massive impact on individual users and businesses and are recasting the relationships between customers, advertisers, workers, and employers. This has triggered a public debate on online platforms’ economic dominance and patterns of pervasive data collection.

In this context, the question of digital platform firms’ roles and responsibilities becomes crucially important. Advancing on these questions will require more in-depth academic research that will benefit from cross-fertilisation across academic silos. It will also provide a new opportunity for various parts of society to engage meaningfully with digital innovation’s upside and dark sides. This will lead to a reformulation of value-based principles such as sovereignty of human decision-making and fairness of intermediation within the context of digitally-enabled societies. This essay inscribes itself in this significant distributed effort, and I hope that it will contribute usefully to this critical endeavour.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Thanks to a reviewer for this insightful comment.

2. High-risk inferences mean inferences that are privacy-invasive, damaging to reputation, and have low verifiability in the sense of being predictive or opinion-based (Wachter & Mittelstadt, 2019).