The Rise of the Platform Economy

Martin Kenney Professor

Community and Regional Development UC Davis

& Senior Project Director

Berkeley Roundtable on the International Economy &

John Zysman Director

Berkeley Roundtable on the International Economy

This presentation draws upon a joint paper published in Issues in Science and Technology. The speaker thanks the Kauffman Foundation and the TEKES-BRIE-ETLA project for their support.

Outline of the Talk

• Introductory observations • National observations • China is different • Concluding discussion

Technology Does Not Determine Outcomes, but

Is a New Dominant Design with Its Winners Becoming Visible?

Or Should We Expect Continuing Churn?

Past as Prologue? • The assembly line gave us the

corporate capitalist, industrial union, a particular public-private divide, etc. – Different nations organized assembly-line

capitalism differently

• Will the Cloud give us the platform capitalist, precarious labor, and increased private rule-making? – Will it be possible for various nations to shape

platform capitalism differently?

Today’s Digital Platforms

• Application of big data, new algorithms, and cloud computing

• Algorithm-enabled “cyberplaces” where constituents can act or transact

• Goal to lock-in and monetize users • Often platforms on platforms

Platform Business

• Platform winner takes almost all – 1 or 2 competitors in each vertical survives –

Google, Facebook, Amazon, Airbnb – But more and more verticals?

• Small numbers of employees, high revenues – Google = ~62,000 employees, $74.54B – Facebook = ~12,700 employees, $17.93B

• Successful platforms are result of and create huge but dependent ecosystems

Data Is the New Raw Material • Generate, Store, Process, Transmit • Created in ever increasing amounts

– UG • Conscious – Websites, Facebook, YouTube, LinkedIn, etc. • Unconscious – Surfing web, cookies, Pokemon Go, etc.

– MG – Sensors, geolocation, etc.

• Algorithms and software are machines for value extraction

• Is a commodity but at Google or Facebook-scale it is a powerful asset

National Comparisons

IoT

IBM – New York

DEC – Boston

Apple – SV SV SV ?????

Location of Top YouTube Creators, 2015 n = 90

SOURCE: Anable and Kenney 2016

80% of views are from outside US Global vs. Local

markets

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YouTube Value Chain and Two Ecosystems

China – Platform Business Groups

(co-author Kai Jia, Tsinghua University)

Chinese Environment • Largest single smartphone market in the world

– Mobile phone-centric • Second largest online market in value terms in

world • Growing extremely rapidly and mobile

platforms mediating ever more of all consumer activity

• Market protected from foreign competition – Space for domestic industry

• Growing big data expertise

Platform Business Group

• Oligopolistic structure – Tencent, Alibaba, Baidu

• Different origins becoming isomorphic

• Interlocking platforms – Cross feeding

• Payment systems central – Due to lack of credit cards

• Little antitrust enforcement

US vs. China Mobile Internet Platform Coverage Comparison of US and Chinese Firms

Note: The red blocks are the core platforms; the yellow blocks represent related successful

Tencent Users

Figure 5: Alibaba Product Structure in the PC Era

Figure 6: Alibaba Platform Business Group Structure in the Mobile Internet Era

Comparison of Two Countries in Mobile Internet

US • More competitors • Verticalized • Consumer lock-in • Global except China • Credit card • Strong antitrust (Europe) • More VC for new firms • More R&D • Ecosystem thinking • Nurture content creators

China • Three major competitors • Business groups • Consumers multi-home • Domestic market • Online payment systems • Weak antitrust • VCs afraid of Big Three • Shorter-term oriented • Mixed feelings toward

content creators

China Structure Will Be Different, But Will the Social Impacts Be

Different?

Global Platform Competition • US firms globally except China

– Silicon Valley and the rest • US best-of-breed vs China PBG • US vertical specialized vs China PBG • US winner-take-all vs. China oligopoly

Question: Can Chinese compete outside

domestic market?

Concluding Reflections

Power Is in the Algorithms • Uber changes payment algorithm • Google changes PageRank algorithm • Google decides on who qualifies for right to

forget • Facebook decides on pornography • Sanders supporters believe they were

discriminated against by platforms Opaque to users, producers, regulators, consumers, citizens

Value Creation Atomized • Online, both work and not work, creates (or

is transformed into) value • “Long tail” work may not produce

substantial income, but some becomes extremely valuable – Flappy Birds, Pewdiepie, etc.

• Where is the work place – potentially everywhere that there is digital access

• Entry barriers dissolved digitally – Uber/Lyft, Airbnb, and many more especially in

financial sectors

Value Capture Centralized • Platform firms have new value propositions

– Massive opportunities for value creation or saving

• Platform owner can tax all other value chain participants – A few may be big winners

• Necessarily will reinforce income inequality – But operationalized in capital gains

Industrial Internet – A Few Observations

• Only now beginning so we don’t quite know its shape

• Is likely to be enormous as IoT gets underway

• Could upset traditional offline business models

• Two US models (GE vs. Silicon Valley) vs Industrie 4.0 vs China 2025 vs ? – Japanese using industry associations to

organize some of this?

W(h)ither Europe? • No important platform firms

– Little expertise in handling big data • With exceptions in gaming seem unable to

produce significant content • Strong base station engineering • Leveraging industrial internet seems last stand • Is EU move toward unified market a problem

or solution? – Destroying power of diversity without creating

mass?

Policy Guides • The power is with the organization

controlling the platform – Algorithms – Data

• Unless reality is understood policy-making will be blind, ineffective, and, quite often just dumb

Open Societal Questions

• How much further? • How transformative? • Who captures the value? • How will it be distributed?

Questions?