Digital Platforms: a practical framework for evaluating policy options, by Pieter Nooren (TNO), presented at the European Consumer and Competition Day, Amsterdam, April 18, 2016
The increasing economic and societal impact of digital platforms, such as Google, Apple, Uber, Airbnb and Netflix, raises a number of questions for policy makers. On the one hand, digital platforms offer efficiencies and opportunities for innovation. On the other hand, they challenge existing policy frameworks by disrupting markets. Concerns are raised about whether the current regulatory approaches and instruments suffice to promote and safeguard public interests.
We suggest that policy makers should not focus on trying to define digital platforms but rather recognise that platform economics is only one element of a much broader set of characteristics of digital business models. Each business model is built on strategic choices in how it operationalises platform economics in order to exploit direct and indirect network effects. This choice is made together with strategic choices in other characteristics of the business model, such as how data is being used, what revenue model is applied, etc. Each of these characteristics can introduce a risk or opportunity for public interests. A policy that aims to address one particular public interest can easily affect the balance between the various business model characteristics and may have unintended effects on other public interests. It is therefore crucial to recognise the heterogeneous nature of digital platforms. In particular, one should stay away from attempts to force digital platforms into a single category, as the positive and negative impacts on public interests differ from case to case.
We have developed a practical framework that provides structured guidance for policy makers when designing policies in the context of the digital economy. Our framework differs from other approaches in that we take the digital business models as the starting point for the analysis. The framework has been applied to a number of case studies in the European context.
The framework consists of three pillars:
1. Platform characteristics capturing the various technical and business aspects of platforms, such as the revenue model (direct payment, advertising, revenue share), network effects, use of data (internal, external, curation/editorial control) and dependence of other companies on a platform.
2. Public interests categorized in four broad areas: competition and innovation, consumer interests, freedom from improper influence, and integrity and continuity of applications.
3. Policy options broadly divided in three categories: removing obsolete instruments, using existing instruments (stricter enforcement or tailor their application to the digital economy) and adopting new instruments.
Digital Platforms: an analytical framework for identifying and evaluating policy options
1. Digital Platforms
An analytical framework for identifying and evaluating policy options
Pieter Nooren
European Consumer and Competition Day, Amsterdam, April 18, 2016
2. Background: assignment from Dutch
ministry to create an analytical framework
2
Create coherent analytical framework for assessment of
policy questions related to digital platforms
Platform types: strategies,
revenue models
Opportunities offered by
platforms: products and
services
Risks introduced by
platforms: which risks,
under which circumstances
Role of government, given
opportunities and risks?
Role of current and potential
new instruments?
Effects of instruments on
‘level playing field’Role of European and
national instruments?
5. We have developed a framework for
analysis of digital platform cases
5
Platform types
and
characteristics
Public
interests
Instruments
and
application
We focus on aspects that differentiate digital platforms from regular businesses
6. The analysis framework promotes a complete
and consistent analysis of key platform aspects
6
10. Examples of platforms: Facebook (1)
10
users
data & algorithms
advertisers
€
indirect network
effects
direct
network
effect
other apps
& platforms
11. Examples of platforms: Facebook (2)
11
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
Platform characteristics
13. Examples of platforms: Apple (2)
13
What are the characteristics of
Apple’s platform?
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
Platform characteristics
14. What is Apple’s main revenue model?
14
users
other apps
&
platforms
data
own apps
Revenue model
- direct payment
- advertising
- access to
- acquisition
€
16. Where are network effects important in Apple’s
platform?
16
users
other apps
&
platforms
data
own apps Direct network effects
Indirect network effects
18. Do other apps and platforms depend on the
Apple platform?
18
users
other apps
&
platforms
data
own apps Use of platform by other
applications or platforms
22. These and other examples show lots of variation
in digital platforms
22
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
Direct network effects
Revenue model
- direct payment
- advertising
- access to
- acquisition
Data and Content
- internal usage
- external usage
Indirect network effects
Use of platform by other
applications or platforms
23. 23
Each platform is different – look at the
underlying characteristics
• Starting point: the business and revenue model of
the platform owner
• The characteristics themselves are well known from
many other digital and non-digital environments
• These characteristics play out stronger and
develop faster for digital platforms
24. 24
Coarse typology of digital platforms
Reseller /
distributor
Marketplaces (peer-
to-peer)
Social networks
Platform of
platforms
Network effects
No (or limited)
network effects
Indirect network
effects
Direct and indirect
network effects
Indirect network
effects (in multiple
directions)
Use of platform by
other platforms
None None Limited
High, other platforms
depend on the
platform
Product and service
markets affected
New/mature Mature New New/mature
Case in this study:
26. 26
The government needs to step in when public
interests need to be promoted or protected
Public interest Interpretation in this study
Sufficient competition and
innovation
Ensuring static and dynamic efficiency through competition
and innovation
Safeguarding consumer
interests
Promoting consumer choice, offering sufficient levels of
consumer protection and safeguarding fundamental rights.
Freedom from improper
influence
Avoiding unnecessary restrictions by governments, while
safeguarding societal interests through positive obligations
Providing integrity and
continuity
Market players, consumers and government need to be able
to rely on safe and reliable digital communications provided
by networks and services
33. 33
There are five key considerations in the
application of instruments to digital platforms
Topic Considerations
Existing/non-existing
instruments
• What generic or sector specific regulation/instruments are already in
place?
• Are areas not covered and should they be covered?
Application and
enforcement
• Are regulatory frameworks implemented, and are regulators actively
enforcing, or attempting to enforce, regulation to digital platforms?
Static/Dynamic • Digital platforms are in transition and require a more normative/functional
approach instead of overly detailed regulation common to static markets.
Risk/harm
Ex ante/ex post
• Policy question on weight to be attached to certain public interests.
• Risk/harm approach can be used to assess innovation opportunities.
Subsidiarity • How much space have (or should have) national governments to intervene
with generic and sector-specific regulation, taking account of EU
regulation?
• Time horizon: how much time does it take to coordinate on a European
level (static/dynamic)?
37. 37
Wrap-up and key messages
Key messages from our study
• Look at the underlying characteristics of platforms and business models
rather than trying to deal with digital platforms as single category
• Explore existing instruments and options that can be applied to digital
platforms before considering new rules
The analytical framework promotes
completeness and consistency in
policy development
• From characteristics to public
interests and instruments
• And back to assess intended and
unintended effects
38. Thank you for your
attention!
pieter.nooren@tno.nl
report available at
http://bit.ly/1OdotO6