Digital Economy Dispatch #011

22nd November 2020

Digital Platforms - The Power and the Glory

In today’s digital economy, it is well understood that digital platforms have redefined our views on digital marketplaces, supply chains, innovation practices, and business models. Through academic studies, in-depth articles, and comprehensive explorations in textbooks over the past decade their influence has been examined and competitive dominance heralded. Gartner goes as far as to state that every company now needs a platform strategy to survive.

What makes them so effective? Most of the discussion on impact of digital platforms focuses in two key areas:

• Many act as marketplaces for the exchange of goods and services. Driven by network effects, those that gain traction can rapidly scale to wield massive influence and dominate their competitors. Companies such as ebay, Amazon, uber, and Airbnb are often cited as examples.

• Others offer innovation hubs for creating high quality solutions. Collections of advanced capabilities are provided over the internet through readily accessible interfaces supported by pay-per-use consumption models. New services can be constructed rapidly by reusing what has already been built. Furthermore, extensive ecosystems are formed around these capabilities to drive growth and ensure loyalty to the communities that emerge. Consider examples such as Apple iOS, Android, and Linux.

A digital platform’s influence is magnified when a company’s strategy combines these two areas. GAFA – Google, Amazon, Facebook, Apple – are highlighted as the most high-profile exponents of this strategy. Their size, growth, and extraordinary market valuations speak for themselves.

Yet this functional view of digital platforms only tells part of the story. From a more strategic perspective, the rise of digital platforms has a more profound impact. They redefine power structures by tearing up 20th Century alliances and commercial interests to define a very different 21st Century map of the world.  These digital platforms hold the power to become significant enablers for control in who does commerce with whom, what information is shared, and how communities are formed, thrive, or are restricted.

Such a perspective is fundamental to understand current attempts to legislate digital platforms in Europe. From a European viewpoint, digital platforms threaten the relationship between states, ignore trade boundaries, and have severe impact on a citizen’s rights. The recent moves to define the EU Digital Services Act is more than a grab for tax income. It is an attempt to update regulations to ensure marketplaces are fair and open, and to protect citizens’ rights as platform-based smart technologies driven by AI learn more about our behaviour, buying habits, interactions, and conversations.

In China, the role of digital platforms has a national and international significance beyond commerce. Massive digital technology investment in AI, 5G, and chip manufacturing can be viewed as a recognition of the powerful influence of digital platforms in determining China’s role in the world. The so-called “Digital Silk Road” is an important indication that China views digital technology in general, and digital platforms in particular, as central to its future. However, the Chinese perspective on digital platforms focuses attention on their ability to act as enablers for redefining global trade and as infrastructures to understand and control citizen activity.

This theme is central to a fascinating recent discussion on “China’s country-as-platform strategy for global influence” by Paul Sangeet Choudary, one of the most interesting writers on platform strategies. He addresses some of the fundamental characteristics of platforms as new business models and as governance frameworks for marketplaces sharing knowledge, services, and goods.

He opens by highlighting that platforms disrupt economics. As we have seen in the market dominance of a few BigTech platform providers, they are creating an opportunity to pull the rug from under well-seated incumbents in several domains.

But he also highlights that platforms change how decisions are made across markets that they dominate. It is not just a different way to sell products and services. It is a new way to govern those markets and the people they serve.

How is this being played out in China today? His key point is that China’s efforts in supporting its commercial digital platform companies forms an essential part of the “Digital Silk Road” strategy. He believes that it is a country-level digital platform strategy that is purposeful and influential worldwide. In both trade and finance he sees China taking a particularly targeted approach to platform strategy. These are well known ideas, perhaps, but clearly summarized in Choudary’s short review.

Perhaps more unusually, he also highlights a third role for China’s platform strategy: Smart cities.

City management and infrastructure is seen as a critical component of China’s modernization approach. It is essential to ensure efficiency of operations in the complex, fast-paced changes taking place in China’s urban areas. Moreover, it is the foundation for China to manage its citizens. Monitoring and management is viewed by the State as a necessary part of the controlled growth of the country and its economy. It is inherent in China’s political approach to social credit, and essential to both its individual and national identity. And digital platforms provide the infrastructure to enable this to be possible in today’s digital society.

As we saw recently in the chaos surrounding the last-minute withdrawal of Ant Group’ IPO (and the implied rebuke to its owner Jack Ma), the country-as-a-platform strategy is not without its dangers. There are many risks in China’s platform strategy (political, economic, and cultural). Nevertheless, the role of digital platforms is highly intertwined with China’s future. China views their success as both inevitable and indistinguishable from China’s reforms. A power struggle with worldwide implications.

Digital Economy Tidbits

Transforming Beyond the Crisis: What organizations need to do now to seize tomorrow. Link.

An interesting set of materials on the impact of the covid crisis on business. A free ebook from the folks at the Brightline Initiative.

Today, the question is what do you need to do now to seize tomorrow? Transforming Beyond the Crisis is a new book by Brightline Initiative and Thinkers50 and brings a unique compilation of the best thinking from the world’s leading business thinkers and practitioners. They share their groundbreaking ideas, global experience and valuable insights. It provides lessons learned, practical tools, and inspiration to guide leaders through the current crisis and carry forward their transformation agenda.

Contributors include Scott Anthony of Innosight, Whitney Johnson, Martin Reeves and other thought leaders from Boston Consulting Group, Behnam Tabrizi of Stanford and Vijay Govindarajan of Tuck Business School.

Shaping the Digital Transformation in Europe. Link.

A new report produced by McKinsey for the EU. It’s main contribution is to outline 9 initiatives that it believes will ensure that Europe meets its digital objectives.

Best Business Books of 2020. Link.

Always interesting as we reach the end of 2020 to see what people thought were the most useful writings of the year. I like the excitement of thinking “ooh, I’ve read that one!”. But somehow in the end I always end up feeling a bit depressed. Partly because I realize how much I’ve missed. But also because most of the time I look at the titles that I’ve skipped this year and find myself yelling out: “Oh for goodness sake!”.

See how your blood pressure holds up to this list from strategy+business.