new platform economy china

The Rise of the Platform Economy

Martin KenneyProfessor

Community and Regional Development UnitUC Davis

&Visiting Professor

National Graduate Institute for Policy StudiesTokyo, Japan

&John Zysman

DirectorBerkeley Roundtable on the International Economy

This presentation draws upon a joint paper published in Issues in Science and Technology.Also, we thank Ruth Collier, Stuart Feldman, Marion Fourcade, Lilly Irani, Kai Jia, Kenji Kushida, Bryan Pon, and others for their valuable comments. The speaker thanks the Kauffman Foundation and the TEKES-BRIE-ETLA project for their support.

Outline of the Talk• Introductory observations• Types of work and value creation• China is Different• Concluding discussion

Past as Prologue• The assembly line gave us the

corporate capitalist (and industrial union). – Different nations organized assembly-line

capitalism differently

• Will the Cloud give us the platform capitalist (and precarious labor)?–Will different nations react to platform

capitalism differently?

Digital Technologies

• Cloud computing (see Zysman 2012) • Ubiquitous connectivity–3 billion smartphones

• PCssmartphonesInternet of Things– Sense, transmit, store, process data

• Software enveloping people and objects

IoT

IBM – New York

DEC – Boston

Apple – SV SV SV?????

Economics of Digital Platforms

• Network effects (Cusumano, Gawer, etc.)• Winner take all– One competitor in vertical survives – Google,

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

• But successful platforms create huge but dependent ecosystems around them

Technology Does Not Determine Outcomes, but

Creates Possibilities

Platform Economy, Sharing Economy?

Platform• Uber• What happens to labor?

– More precarious• Income distribution

– Platform owner “taxes” all?• More efficient use of resources

– Airbnb, Uber etc.• Winner take all industries• Who monetizes• Monetization of UGC

Sharing• Wikipedia• More wealth by sharing?

– Cooperative• Income distribution

– Redistribution• More efficient use of

resources– Locally organized

• Open source software• User-generated content

shared

Access for Producers Greater than Ever Before in History

• Apps can be uploaded from anywhere in the world– Openly available SDKs etc.

• Making a video for YouTube cheaper than ever

• Global access and devices more widespread and less expensive than ever

• Digital markets are global

Power Law Returns!!!

Location of Top YouTube Creators, 2015 n = 90

SOURCE: Anable and Kenney 2016

80% from outside US

Top 100 Paid IOS and Android Apps in 10 Largest Markets by Country of Origin, 2015So

urce

: Bry

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015

Data Is a New Raw Material

• Surfing the internet creates value (Terranova, Lanier et al.)?– Digital exhaust

• Putting content on Facebook, Pinterest, Youtube, LinkedIn?

• Creating open source software?– If on GitHub?

What Is a Digital Platform• The key readings on platforms:– Gawer and Cusumano 2002. Platform Leadership– Eisenmann, Parker & Van Alstyne 2011. Platform

Envelopment SMJ

• A digital platform is:a set of technical building blocks that act as a foundation upon which an array of firms, sometimes called a business ecosystem, can develop complementary products, technologies or services (Gawer 2009).

Digital Platforms• Application of big data, new algorithms,

and cloud computing• Algorithm-enabled “cyberplaces” where

constituents can act or transact• Create network effects between various

sides, applications and users, virtuous circles of growth

• Goal to lock-in and monetize users

What Will Be the Economic Organization?

• Sharing economy (Benkler) – too narrow and Uber etc are not sharing

• Peer economy (Chase) – Uber etc. not peers, too narrow

• Gig economy (Friedman) – Describes the compensation and work, but misses the digital nature of the reorganization

• Precariat (Standing) – Describes relationship of many to employment, but misses digital aspect

These Digital Platforms May Affect

Changes in labor force Value creation and capture

New businesses such as YouTubers Spatial organization Role of the state

Do it and ask permission later – hopefully after you have changed the conditions on the ground

East Coast Law = Government, West Coast Law = Code

Platform Economy

• Consumer –Discussed here

• Industrial (likely to be extremely important in the future)–Internet of Things–Industrial Internet

Types of Work and Value Creation

Number of Participants

Venture Labor

D. Apps stores, Youtube etc.. shared advertising revenue,

Amazon self-published books, games, such as Zynga, etc.., affiliate marketing revenue

Open Source commercialRedhat, Github

A. Cyberformal globally biddable labor monetization. Amazon, Mech Turk, oDesk, etc.

Free labor such as posting to Facebook, Twitter, LinkedIn, Youtube, Pinterest, Yelp, etc..

All activity on the net- Google, Bing, Browsers, ad networks

Compensated by employer for building website, etc..

Can become Venture Labor

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Labor, Value Creation and Capture in the Consumer Platforms

Can become monetized if sufficiently visited

Acknowledgements: Thanks to John Zysman, Ruth Collier, Bryan Pon and Lilly Irani for suggestions and comments on this figure.

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Liquidity event, stock options valuable, no longer Venture Labor now operating companies subject to stock market etc.

B. Industry cyber-transformed. eBay, Amazon Market, Uber AirBnB

These are theplatform buildersand VC financed

Traditional economic activities attacked, can include monetizing assets such as automobile, spare room

Platform firms funded by VCs, e.g. Google, Facebook, Uber – their direct employees

E. Virtual Project

Funding, Kickstarter, Indiegogo,

etc..

Copyright: Martin Kenney

C. Cyberformalize informal markets, TaskRabbit, etc.

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Compensation

Venture Labor – The Elite of the System


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Liquidity event, stock options valuable, no longer Venture Labor now operating companies subject to stock market etc..

These areplatform buildersand VC financed

Successful platform firms funded by VCs, e.g. Google, Facebook, Uber – their direct employees


Often winner take all with enormous capital gains

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Number of Participants

All activity on the net- Google, Bing, Browsers, ad networks

Compensated by employer for building website, monitoring social media, etc.

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Compensation

Monetized Activity in Exchange for Platform Use – Distributed Value

Creation

Consignment labor such as posting to Facebook, Twitter, LinkedIn, YouTube, Pinterest, Yelp, etc..

Can become monetized if sufficiently visited, see D

Observation: Enormous Amount of Value Created while Compensation Is Use of Platform

6

5 Open Source commercialRedhat, Github

3 & 4. Compensated Platform-Mediated Work

A. Global bidding/cyber-contracting – eLance/Odesk

–Microwork – fill up working day -- AMT

B. Industry cyber-transformed, e.g., taxi cab – Uber; hotel -- Airbnb

C. Informal work – cyber formalized, e.g., TaskRabbit, Instacart

D. Virtual consignment – Apps storesE. Virtual project funding –

Indiegogo,Udemy

Contracting in the Platform Economy

A. Globally Biddable Contract Labor AMT, UpWork, etc.

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transformed. Ebay, Amazon Market, Uber Craigslist, AirBnB

C. Cyber-formalize informal markets, TaskRabbit, etc.

4

A. Globally Biddable Contract Labor• Lowest price• Contractors largely powerless– Exception if they have rare skills (Kunda and

Barley’s gurus)• Little upside for contractor besides possibly

learning– Could lead to a permanent job?

• Social Outcome: – Replace permanent employees–More efficiently allocate people to work

B. Industry Cyber-Transformed• Convenience, efficiency, mobilization of slack

assets• Often roll up fragmented industries

• Breakdown barriers to competition (taxi rules, zoning, anti-discrimination)– But some initial advantages eroding as Airbnb pays

hotel tax, Uber/Lyft get commercial insurance, etc.• Providers largely powerless vs. platform owner– Little upside for contractor

C. Informal Work -- Cyber-Formalized

• Cyber formalization history is long – eBay, Craigslist

• Large number of huge platforms• Movement of control and monitoring to the

Cloud• Social Outcomes– Greater efficiency and price discovery– Greater transparency in terms of taxation, trust

etc.– Shift of power to platform owner

D & E. Virtual Consignment and Virtual Project Funding Models

D. Apps stores, Youtube etc.. shared advertising revenue,

Amazon self-published books, games, such as Zynga, King

Digital, Supercell, etc.., affiliate marketing revenue

Mon

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E. Virtual Project

Funding, Kickstarter,

Indiegogo, etc..

Can lead to entrepreneurship and upside

3

Virtual Consignment• The Apps stores have now paid out $20

billion• YouTube – YouTube Partner Program–Created in 2007–1M+ creators –1,000s of channel earning $100K+–Vidcon Convention 2014 – 19K+

• Udemy – Online courses

Returns to Producers for Cyber Consignment

Super long tailVery small return

Discoverability an issue

Winner take all returns

$

Items, videos etc.

Of course, platform owneralways wins

But if there is referral, researchshows that long-tail refers to winners ipso facto theysubsidize winners!

© Martin Kenney

D. Virtual Consignment Model• Platform owner gets content at no cost• Content provider bears all costs• Content provider may have multiple forms of

upside– Payment from platform owner– Ancillary income sources from audience• Appearances, testimonials, product placements, items

• Content providers’ return characterized by power law

• Social Outcome:– Enormous opportunities for new work but WTA

E. Virtual Project Funding/FinTech

• Crowd “charity” funding – Kickstarter ($612M) and Indiegogo ($98M)

• Cyber platform for angels – Angel’s List

• Bitcoin and block chains

Concluding Reflections

Algorithmic Law?• Power is in the algorithms– Volkswagen “solved” pollution with algorithms that state

tests could not see– High frequency trading

• Uber changes payment algorithm • Google changes PageRank algorithm– Decides on who qualifies on right to forget

• Facebook decides on pornography– Women breast feeding

Opaque to users, producers, regulators, consumers

Value Creation Atomized Throughout Society

• Online human activity, 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 etc.

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

Successful Platforms Often Are WTA

• They have new value propositions– Massive opportunities for value creation or saving

• Platform owner/workers benefit massively, but not necessarily contractors and consigners – A few may be big winners

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

financial sectors

If Platform Economy, then

• Who owns/controls the platform?–Wikipedia meets Uber meets the Danish

Ag Coop• Is power centralized as platform

controls the connection nexus– Lock-in and network effects– Power is in the algorithms and data control

• Who gets rewarded?

Questions?

new platform economy china

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