Assessing Platforms: How the European Commission’s Platform Assessment May Bring in Cars, Newspapers and Stock Exchanges
Later this week we are likely to see the publication of a European Commission consultation on ‘online platforms’. Readers of DisCo who are keen observers of European digital policy have been waiting for this. Others may remain blissfully unaware of what this consultation will address. After all, nobody in Brussels was talking about the subject of platform regulation until the letters sent by the governments of France and Germany last November put the topic on the agenda and into the Digital Single Market strategy. Or, maybe the Google competition case had already spiked your interest, given how high profile and political that has become, Google’s search service being a platform after all.
If you have heard of online platforms it may be more in the context of ‘who’ is being looked at, rather than the abstract ‘what’. As the the UK Minister with responsibility for the digital industries Ed Vaizey said a recent House of Lords hearing on the matter “We need greater clarity….from the member states that are talking about platform regulation about what they mean by “platform”, what specific regulation they are talking about and what ill they are trying to cure”.
So given the confusion about the confusion, let’s begin at the beginning.
What is a Platform?
As I wrote on DisCo in February 2015:
[P]latfrom markets include newspapers, shopping centres, estate agencies, video games, credit cards, TV networks and many more. A market is two-sided when it brings together two-distinct groups, through a platform or intermediary, that benefit from each other’s existence. Ebay buyers benefit from having more sellers (and sellers benefit from more buyers), stores in shopping malls benefit from more shoppers and shoppers benefit from more stores, and Xbox video game developers benefit from more Xbox owners (and vice versa). The company that creates the platform makes money by creating value for the other parties in the system.
An online platform is, well, such a platform that is on the Internet.
What’s not a Platform?
Just because it’s online doesn’t mean it’s a platform. In a draft of the Commission’s consultation, leaked by Politico, platforms were accurately described as two-sided markets. However, the list of examples then included companies that are not typically thought of as online platforms. I assume the Commission does not want to assess all services on the Internet because that is, well, almost all services in the economy these days from supermarkets to book publishers.
What and who is becoming an online platform?
Just because something is analogue and offline today doesn’t mean it won’t be digital and online tomorrow. Equally, a business with a one-sided model (business to the consumer or business to business) can become two-sided. Perhaps the best example of this is the automobile industry.
20 years ago cars were essentially metal and leather. They have rapidly become digital, and that evolution looks set to continue. Car companies have also gone from having only a relationship with the customer (one-sided) to sitting in the middle: the driver interacting with an application like Spotify through the car’s connected on-board system. What therefore could be the end point of platform regulation? Will this initiative cover the platform type of activities of car makers from Japan to Detroit and all in between?
Where will this lead us?
Once a definition is nailed down the Commission is likely to be looking at questions ranging from transparency, to ratings systems and how platforms use data. It is still not clear to most observers if there is actually a problem to be investigated or whether the search is still on for problems in a high profile new area. Let’s not forget that disruption and disruptive companies have always provoked a political reaction and this exercise is certainly in keeping with that tradition.
It will be important to resist the temptation to believe all information and offers can be presented entirely neutrally by online platforms. Platforms must make a decision about what information or offers to show first, in what order and what fees to charge (if they have fees). With the Internet having a long, waggy tail, this requires judgement by the platform. Unless they do so, they can’t make a clear offer to consumers. Unless they each do so differently from their competitors, there will be no effective competition.
Secondly, we must avoid the temptation to believe that just because the because other industries are regulated a certain way that this would make sense for platforms….which are not an industry, but rather a way of organising a business.
Finally, we mustn’t forget that there can be competition on a platform and competition between platforms. The Internet is such a dynamic space that new services, application and platforms are coming along all the time. It is this very competition that will ensure consumer welfare continues to be enhanced through long run innovation.
One likely outcome of the Commission’s consultation is to recognise that the regulatory needs of stock exchanges, newspapers and cars are very different. Any outcome should take account of these differences and ensure that the very vibrancy of the Internet economy is maintained. Regulation that entrenches the positions of today’s market leader would not be a good outcome.