On the second day of the World Economic Forum 2016 there was a truly interesting session on how digital platforms can increase innovation and help the digital economy grow. The lively session, named “A New Platform for the Digital Economy”, focused indeed on the core theme of 2016 Davos annual event, by analysing some of the key-aspects of a “Fourth Industrial Revolution”.
Since the creation of the Internet and the beginning of the digital economy era, the Web has enabled people and businesses to connect and exchange information and products fast. As the world moves frenetically towards a new industrial revolution, how can the Internet continue to be an element of real growth for our economies? How can we secure a business environment which is led by innovation and remains open to societal transformation? The WEF session, moderated by Jonathan Zittrain, Professor of Law and Computer Science at Harvard University, tried to give an answer.
Wholesale and retail platforms
The WEF 2016 Session opened with a mention, or some sort of “tribute” to the mother of all platforms, the base which is “foundational to almost everything digital these days” as said Mr. Zittrain, “such as the internet”. The Internet has been depicted as a sort of “wholesale platform”, which is the base of other more “retail platforms”, where entrepreneurs have then built “new platforms” that people of the world can use in “innovative and interesting ways”.
The first to participate to the debate was Nathan Blecharczyk, someone who probably knows how to use the platform in remarkably “interesting ways”, being the Co-Founder and Chief Technology Officer at Airbnb. The San Francisco, California-based company is one of the fastest-growing digital companies in the world, and represents for sure a peculiar case study to understand more the so-called “platform economies model”. Indeed Airbnb, which is merely a website for people to list, find, and rent lodging, runs on a marketplace platform model where it connects hosts and travelers and enables transactions without even owning any rooms itself.
A marketplace-platform model
Airbnb’s model is based on a sort of virtuous circle made by people with a word-of-mouth network that connected 70 million users in 7 years, 40 million last year alone. “In essence we built a platform to facilitate payments, reviews, search, but we are actually not the provider of the ultimate service, which is the accommodation”, said Mr. Blecharczyk.
Indeed we can see Airbnb as a mere result of “network effects”, as unlike traditional hotels it scales up not by scaling inventory but by increasing the hosts and travelers and matching them with each other. “We are only the facilitators, we just really make sure that the facilitation with you speaks to the specific customers’ needs”, as explained by Mr. Blecharczyk in Davos. “In the end, Airbnb allows a person, who might even be not sophisticated in terms of IT, to participate in the global economy”, Mr. Blecharczyk added, and here’s one of the growth drivers of the 21st century platforms. They gained momentum because they facilitate life, they maximise efforts. Simple, but indeed immense.
The YouTube case
And that can also be an explanation of another incredibly successful platform, something that changed the way we watch television, the way we spend our own time, the way we more and more become popstars: YouTube. “The strength of YouTube is the community”…“where publishers, advertisers and viewers work together”, as stressed by Susan Wojcicki, Chief Executive Officer at YouTube, a prominent member of the panel of this particular Davos session. Another simple formula, which indeed explains how platforms are the result of combined work between people that don’t even know each other. So one simple question comes easy at this point: could this power that comes from this sort of network effects be one of the pillars of the fourth industrial revolution?
Arun Sundararajan, Professor of Business at New York University, made a very interesting analysis, last week in Davos, on a deep change that platforms are bringing: “I think Airbnb and YouTube are two great examples of a ‘crowd based capitalism’”, he said, “where you are moving away from systems where a hierarchical organisation produce stuff for people to buy, […] towards platforms that enable large, distributed groups of people to start to access demand that they could not have otherwise reached”.
The bar of trust
Moreover, Professor Sundararajan underscored also the social effect platforms have: “Platforms – being them related to retail, commerce, accommodation, transport or whatever else – have made people more comfortable with the idea of getting a real-world service from someone they don’t know”, he said. “We have really raised the bar of trust here: we are getting into a stranger’s car and say ‘drive me to another city’!”, he added.
However, an enormous potential can inevitably bring also risks. Platforms and their exponential growth are probably not a different case and there are also aspects to be considered as a threat of an unexplored environment. Let’s think about rules. Who’s actually setting rules and boundaries for an economic model and exchange method that simply was not existing just a few years ago?
Mr. Sundararajan indeed brought the thorny element of discussion to this 2016 WEF session, when he said he sees a “blurring of lines between platforms and regulators”. He meant by that that platforms are also playing the role that was usually played by a government in the past. “Platforms create a way to make the system work”, he said, “as basically nothing was existing before them, but sometimes this can be risky, as we don’t know what system of rules should be used”.
Transparency and safety
Mr. Zittrain made the matter clearer: he openly talked about minimum standards that should be set by authorities, and addressed the question directly to Airbnb’s Blecharczyk “If my tree house on Airbnb has a very loose planks in it, would that be enough to put that in a list and say ‘beware: there is a loose plank, it is marked with a red line’, you know, the kind of thing the Holiday Inn would not let that room…Is that ok? Is that just part of the democratisation?”
“I think transparency in expectation setting is critical. There’s a full spectrum of risks that may come up, and communicating that upfront is, you know…the Best Western, the traditional providers wouldn’t even have a tree house in place!”, replied Mr. Blecharczyk. He then said that, in order to protect their consumers, they have personalised the insurance.
Mr. Zittrain also asked the same thing, from a content perspective, to YouTube’s Wojcicki, asking basically how they protect their users from videos they wouldn’t want to be on their platform. Ms. Wojcicki said they basically rely on the platform itself, that they “rely on our users to flag the content they don’t want to be part of their community”. So again, another example of how this network effects live on its own efforts, like an independent ecosystem. Again, a matter of trust in this network’s potential.
An issue of reputation?
But there’s something that can be even more interesting if we look at the future of platform and of the entire digital economy. Something which has to do with trust, but indeed has a deeper impact on people’s life: reputation. Reputation is in general a big word. When it comes to business, it becomes even more delicate, as also reputation is a result of “network effects”.
Last week’s WEF session said how platforms can also become an indicator of a person’s reputation in the so-called “real world” in the future. An example? Airbnb again. Mr. Blecharczyk was challenged by a member of the audience during the session who asked him whether they were thinking to expand in the real estate sector. Indeed the answer was no, but something different, and even more stimulating emerged.
Airbnb could instead become the provider of a person’s credit score in the future, at the pace the digital industry is moving. So for example if a person has been a good Airbnb user someone could be more willing to underwrite him, or her a mortgage then. This means that the platform could become the trustees of the internet, or even of our lives; the platform to change the face of the Internet itself. Possible? Absolutely conceivable at least.
Open future points
Whatever will come, it’s already clear that platform will play a pivotal role in the “fourth industrial revolution”, on different scales. We have the mere economic aspect, with a truly-fast growth and unprecedented results, the social aspects, with trust between people, and something even more on the psychology level, like reputation. With many open points to come of course, like accessibility and safety.
“We can’t expect the digital technology or the access to the digital technology itself to be the entire solution”, argued Professor Sundararajan from Davos. “People have to know how to run a business online, they need to know how to access the business”, he continued, “so in some cases, we may need real layers, like real-world intermediaries, that can take people […] ‘on board’”.
“Like in emerging markets, for example, where people may not be as comfortable as in the United States with simply booking and going on Airbnb”. “I think this would be a really important part for this growth”, he added.