The platform business model is prevalent among the largest global companies such as Apple, Amazon, Alibaba, Facebook, Tencent with platform companies accounting for trillions of dollars in market cap and a sizeable part of market cap increases among the largest companies in the world. The use of platforms as a model is increasingly employed at the country level and across regions as new formats are explored to build new networks and alliances.
The building of platforms that are meant to engender strong network effects and drive a cumulative increase in the weight of the network’s ecosystem is starting to reach a scale that has important implications for the global governance framework and its future development.
There may also be a case for creating technocratic/depoliticised platforms at the global level, which may include a global platform for regional integration arrangements, platforms that bring together regional and national development institutions such as development banks as well as regional financing arrangements, and possible platforms that bring together such heavyweights in the world economy as Sovereign Wealth Funds. The building of the world’s economic architecture with platforms as the construction material may well render the global construct more stable and less prone to crises, particularly if we start thinking more about the interoperability of platforms across the various levels of governance as well as ways to render the emerging competition between these platforms and ecosystems more innovative and constructive.
Leadership is the art of giving people a platform for spreading ideas that work. – Seth Godin
In the past few years one of the most emphatic trends in the world economy was the propagation of corporate platforms that encompassed marketplaces as well as digital ecosystems. The onset of the COVID epidemic is likely to further accentuate the shift towards the use of such platforms to facilitate transactions and economic activity, writes Yaroslav Lissovolik, Programme Director of the Valdai Discussion Club. The publication of this op-ed continues online collaboration between Valdai Club, Russia as part of its Think Tank project and the Center for Russia-China Strategic Interaction under CITIC Foundation for Reform and Development Studies, China.
The platform business model is prevalent among the largest global companies such as Apple, Amazon, Alibaba, Facebook, Tencent with platform companies accounting for trillions of dollars in market cap and a sizeable part of market cap increases among the largest companies in the world. The use of platforms as a model is increasingly employed at the country level and across regions as new formats are explored to build new networks and alliances.
The emergence of a “platform economy” that engulfs the micro-level of companies and the macro-level of countries and regions may have important implications for the shaping of international cooperation and global governance in the years ahead.
The economics of the operation of a platform whether at the level of companies or at the macrolevel of regions and countries is largely rooted in the network effects as well as positive network externalities. Network effects involve increases in the value of services emanating from the rise in the number of users/customers/members. This in turn incentivises new entrants/participants to join the network to benefit from the rising optionality and access to services and members. The optionality in the range of services is advanced via the formation of a diversified ecosystem that also seeks to mutually reinforce the various segments of the network’s operation.
At the corporate level, the technology of the platform business model has clearly passed the first stages of innovation and is now actively proceeding to the stage of replication across industries and geographies. According to McKinsey, more than 30% of global corporate revenue could be mediated by digital platforms by 2025. A significant part of the activism in platform creation is concentrated not only in the B2C, but also the B2B segment, whereby the use of a platform allows corporates to focus on core activity, while allowing the partnership with the technological companies to alleviate the costs associated with building own data centres. According to Launchworks’ Laure Claire Reillier, for a platform-based company such as Apple “the beauty of a platform-powered ecosystem is that the combination of businesses – phone and app store – is worth more than the sum of its parts. In fact this is the rationale behind Apple’s decision to stop reporting hardware sales. They want analysts to start assessing them on the health of their ecosystem – and the margin generated – rather than the number of products sold”.
Given the trends in the corporate world, platform strategies are becoming increasingly relevant at the macro-level of countries and regions. As noted by
Sangeet Paul Choudary, Founder of Platformation Labs, “in a world dominated by platform companies that offers ways for customers and companies to connect, countries that want to act as global trade hubs must think like a platform nation”. In other words, in order to win the “platform race” national economies will need to exhibit such platform features as openness, benign regulatory environment, innovation and flexibility – this involves sufficient scope for launching start-ups, attracting talent, access to data, retraining the labour force, benefiting from regional growth poles, including in areas such as R&D. In many ways all this may involve the transformation of national economies and their regions into analogues of open platforms that favour innovation.
In many ways with the progression of globalisation the operation of national economies is based on platform/network effects related to competition for attracting investment, trade and technologies as well as talent. Across countries, some of the best conditions for building a platform economy are observed in Singapore, which enjoys a favourable environment for businesses – the country ranks at the top of the Government as
a platform index. Out of the 16 G20 countries in Accenture’s Platform readiness index
the top five positions were occupied by the US, China, UK, India and Germany. The index is based on factors that provide favourable conditions for digital-platform adoption, such as the “maturity of the digital population and market based on its size, savviness, culture and spirit of collaborative innovation” as well as “the quality of each country’s technology infrastructure and …
market regulation”.
Beyond the level of national economies country alliances formed on the basis of regional integration arrangements as well as cross-regional partnerships also involved platform strategies. At the level of regional integration arrangements some of the examples of such strategies include the EU’s
Digital Single Market (DSM) strategy as well as the Digital Agenda of the
Eurasian Economic Union. The use of platforms is progressing also to the level of “integration of integrations” that brings together not only individual countries, but also regional integration blocks. The EU that is particularly active on that front is actively pursuing economic cooperation with
ASEAN in the digital sphere, while the Eurasian Economic Union has been exploring the possibility of launching digital alliances with key partners to promote greater connectivity in the sphere of transportation and
infrastructure development.
The building of platforms that are meant to engender strong network effects and drive a cumulative increase in the weight of the network’s ecosystem is starting to reach a scale that has important implications for the global governance framework and its future development. Indeed, at this stage all of the main centres of the world economy are coming up with their own platforms that are imbued with a certain vision of how the globalisation process is to unfold. In the case of the EU it is the Alliance for Multilateralism (launched in April 2019), in the case of the US apart from the Trans-Pacific and the Trance-Atlantic projects that have lost some of the lustre in the past 3-4 years, it is the Quad/Quad+ that is gaining increasing momentum in building a framework for cooperation in the Indo-Pacific, in the case of China it is the Belt and Road Initiative (BRI) as well as the
BRICS+ platform launched in 2017.
These are just some of the platforms that may compete for trade and investment flows, with the world economy’s architecture being reshaped and reloaded in a format that facilitates the launching and development of corporate, regional, national and cross-regional platforms.
There may also be a case for creating technocratic/depoliticised platforms at the global level, which may include a global platform for regional integration arrangements, platforms that bring together regional and national development institutions such as development banks as well as regional financing arrangements, and possible platforms that bring together such heavyweights in the world economy as Sovereign Wealth Funds. The building of the world’s economic architecture with platforms as the construction material may well render the global construct more stable and less prone to crises, particularly if we start thinking more about the interoperability of platforms across the various levels of governance as well as ways to render the emerging competition between these platforms and ecosystems more innovative and constructive.
Source: Valdai. Discussion club
