Consumers Have the Power to Make Digital Platforms Rise and Fall

Platforms are not something new. Essentially, a platform business model is simply a way to connect two groups, whether it’s uniting buyers and sellers on an eCommerce platform or uniting riders and drivers through an app. That business model, though, has revolutionized many parts of the economy.

Digital platforms have been very successful in competing with one another. Matthew Schruers, president of the Computer & Communications Industry Association (CCIA), told PYMNTS that they have been so successful that they disrupted a lot of incumbents, which has brought on the establishment’s discontent.

This business model took off so quickly in the last few years because it can be so effectively deployed with technology. Many of the largest digitally enabled services have platform business models in entirely different sectors of the economy.

Whether it’s advertising, consumer electronics, or retail, these companies come from different places, and they compete against each other and with less technologically abled companies, Schruers argued. “What unites these companies is that they have delivered a lot of value to the economy.”

Platforms can be quickly deployed, and thanks to network effects they can grow rapidly, but they can fall apart just as quickly. Schruers warned. “Look at Myspace; it went from a natural monopoly to an afterthought in a year.”

And this is the power that consumers have. They know what good and bad services are and go where they can get the best service. This makes good competition and good businesses, and it also creates the incentives for these platforms to continue adding features that consumers want.

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But for Schruers, there is a risk that the proposals out there change the competition policy cemented over more than 50 years for a new sort of industrial policy around a handful of the larger companies, which may have a significant impact on the U.S. competitiveness.

COVID-19 made everybody realize how important platforms are. Businesses were forced to figure out how to meet their customers’ needs online overnight, with virtually no preparation. Small businesses turned to digital services to do that, to be able to find their customers.

Schruers said that this has created a multimodal competition, both brick-and-mortar and digital, existing simultaneously. Outdoor real-space advertising and digital. More businesses are becoming omnichannel. This was a term associated before with retail, but now it is also with services, health and fitness.

“This creates competition because consumers have more choices online, and for instance, a fitness instructor in D.C. may be competing with other instructors across the country.”

Additionally, the costs of starting a business have fallen dramatically. “In the old days, we would have had to get an office lease, get a business loan from your local bank, invest in a fax machine and chairs and infrastructure. There were all these upfront investments.”

Now all these costs are gone, companies are virtualized. That makes the competitive landscape much more dynamic; it’s great for consumers and startups. But it also means that incumbent businesses must constantly look over their shoulder because there is more pressure from new entrants, Schruers said.

But large platforms may also be a good exit strategy for small firms and their investors. Startups receive funds to develop some products and innovate, and when large companies acquire them, this money can be reinvested in another startup that is trying to innovate.

Although big companies could still develop some of these products in-house, if this doesn’t happen, it is not always a bad thing. For instance, startups usually defy conventions that may exist on large platforms. They think outside the box, and we need this kind of dynamism to create great products.

“Competition policy is clearly one of the most critical issues right now around the world,” Schruers said. Policymakers are stepping away from the past 50 years of competition policy towards a more industrial policy approach, protecting one company from another. This could impact U.S. companies, and policymakers need to understand this.

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