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Platform capitalism

Nick Srnicek

pages: 43-48

What are platforms ? At the most general level, platforms are digital infrastructures that enable two or more groups to interact. They therefore position themselves as intermediaries that bring together different users: customers, advertisers, service providers, producers, suppliers, and even physical objects. More often than not, these platforms also comme with a series of tools that enable their users to build their own products, services, and marketplaces. Microsoft’s Windows operating system enables software developers to create applications for it and sell them to consumers; Apple’s App Store and its associated ecosystem (XCode and the iOS SDK) enable developers to build and sell new apps to users; Google’s search engine provides a platform for advertisers and content providers to target people searching for information; and Uber’s taxi app enables drivers and passengers to exchange rides for cash. Rather than having to build a marketplace from the ground up, a platform provides the basic infrastructure to mediate between different groups. This is the key to its advantage over traditional business models when it comes to data, since a platform positions itself (1) between users, and (2) as the ground upon which their activities occur, which thus gives it privileged access to record them. Google, as the platform for searching, draws on vast amounts of search activity (which express the fluctuating desires of individuals). Uber, as the platform for taxis, draws on traffic data and the activities of drivers and riders. Facebook, as the platform for social networking, brings a variety of intimate social interactions that can then be recorded. And, as more and more industries move their interactions online (e.g. Uber shifting the taxi industry into a digital form), more and more businesses will be subject to platform development. Platforms are, as a result, far more than internet companies or tech companies, since they can operate anywhere, where ever digital interaction takes place.

The second essential characteristic is that digital platforms produce and are reliant on ‘network effects’: the more numerous the users who use a platform, the more valuable that platform becomes for everyone else. Facebook, for example, has become the default social networking platform simply by virtue of the sheer number of people on it. If you want to join a platform for socialising, you join the platform where most of your friends and family are. Likewise, the more numerous the users who search on Google, the better their search algorithms become, and the more useful Google becomes to users. But this generates a cycle whereby more users beget more users, which leads to platforms having a natural tendency towards monopolisation. It also lends platforms a dynamic of ever-increasing access to more activities, and therefore to more data. Moreover, the ability to rapidly scale many platform businesses by relying on pre-existing infrastructure and cheap marginal costs means that there are few natural limits to growth. One reason for Uber’s rapid growth, for instance, is that it does not need to build new factories — it just needs to rend more servers. Combined with network effects, this means that platforms can grow very big very quickly.

The importance of network effects means that platforms must deploy a range of tactics to ensure more and more users come on board. For example — and this is the third characteristic — platforms often use cross-subsidisation: one arm of the firm reduces the price of a service or good (even providing it for free), but another arm raises prices in order to make up for these losses. The price structure of the platform matters significantly for how many users become involved and how often they use the platform. Google, for instance, provides service like email for free in order to get users on board, but raises money through its advertising arm. Since platforms have to attract a number of different groups, part of their business is fine-tuning the balance between what is paid, what is not paid, what is subsidised, and what is not subsidised. This is a far cry from the lean model, which aimed to reduce a company down to its core competencies and sell off any unprofitable ventures.

Finally, platforms are also designed in a way that makes them attractive to its varied users. While often presenting themselves as empty spaces for others to interact on, they in fact embody a politics. The rules of product and service development, as well as marketplace interactions, are set by the platform owner. Uber, despite presenting itself as an empty vessel for market forces, shapes the appearance of a market. It predicts where the demand for divers will be and raises surge prices in advance of actual demand, while also creating phantom cabs to give an illusion of greater supply. In their position as an intermediary, platforms gain not only access to more data but also control and governance over the rules of the game. The core architecture of fixed rules, however, is also generative, enabling others to build upon them in unexpected ways. The core architecture of Facebook, for instance, has allowed developers to produces apps, companies to create pages, and users to share information in a way that brings in even more users. The same holds for Apple’s App Store, which enabled the production of numerous useful apps that died users and software developers increasingly into its ecosystem. The challenge of maintaining platform is, in part, to revise the cross-subsidisation links and the rules of the platform in order to sustain user interest. While network effects strongly support existing platform leader, these positions are not unassailable. Platforms, in sum, are a new type of firm; they are characterised by providing the infrastructure to intermediate between different user groups, by displaying monopoly tendencies driven by network effects, by employing cross-subsidisation to draw in different user groups, and by having a designed core architecture that governs the interaction possibilities. Platform ownership, in turn, is essentially ownership of software (the 2 billion lines of code for Google, or the 20 million lines of code for Facebook) and hardware (servers, data centres, smartphones, etc.), build upon open-source material (e.g. Hadoop’s data management system is used by Facebook). All these characteristics make platforms key business models for extracting and controlling data. By providing a digital space for others to interact in, platforms position themselves so as to extract data from natural processes (weather conditions, crop cycles, etc.) from production processes (assembly line, continuous flow manufacturing, etc.(and from other businesses and users (web tracking, usage data, etc.). They are an extractive apparatus of data.