The impact of Big Tech in three moves

REDUCTION OF INFORMATION ASYMMETRIES, MODULARITY, COCREATION OF PRODUCT/SERVICE ARE THE FACTORS THAT MEASURE THE POTENTIAL MARKET IMPACT OF DIGITAL PLATFORMS AND NEED TO BE CONSIDERED BY COMPANIES AND POLICYMAKERS DEALING WITH THEM

by Gianluca Salviotti, associate professor of practice SDA Bocconi School of Management
Translated by Alex Foti

Thumbing through the list of most capitalized companies on global markets, in the top five positions we find the 4 tech giants of Apple, Microsoft, Alphabet (Google), Amazon. Beyond the digital nature of their businesses, these companies have another aspect in common. All base at least part of their business model on the concept of the digital multisided platform. This means a business built on a digital platform that generates value by facilitating the interactions between two or more customer groups affiliated to the platform itself.
Think for example of the Amazon marketplace, which facilitates the exchange of value between sellers and buyers. The former take advantage of the platform and its user traffic as an online showcase, the latter travel the electronic streets of this large market finding in a single place an offer that combines shopping mall, Portobello Road, and high-tech retailer. The entity that controls the platform has the role of orchestrator and arbiter of this digital market, on which it imposes the basic rules.
Multisided platforms have changed the way companies serve customers. What changes is not only the product offer, but the entire market context and the rules that regulate it. In fact, platforms are nothing more than digital market infrastructures that try to solve some of the tensions present in the traditional process of exchange and generation of value.
What is not always clear, for traditional companies but also policy makers, is how digital platforms can represent an opportunity, for the evolution or expansion of their business model, and the overall economic benefits generated for the context in which they operate.
A recent empirical study of several direct experiences has allowed us to identify three classes of factors that measure the potential impact of a platform on a market.
The first class of factors is linked to information which, traditionally, can represent a major obstacle to market efficiency. In this sense, a platform can have a positive impact both in terms of reducing information asymmetries and lowering information complexity and fragmentation inherent in market transactions.
The second class of factors concerns modularity. In markets where products or services are highly modular, i.e. they lend themselves to being broken into sub-components, multisided platforms provide supply by disaggregating and then re-aggregating them. This enables the creation of new value propositions: it is the case of the Android and iOS operating environments, which have reinvented the mobile phone by disaggregating its functions into several sub-components open to app developers.
Finally, multisided platforms can bring considerable benefits to the creation of value where consumers show very heterogeneous preferences or a strong propensity for product/service co-creation. Let's take the world of entertainment as a reference, where platforms allow you to select the individual programs in which a user is interested, thus meeting the preferences of consumers who are very different by age group and tastes.
In addition to these factors, it should not be forgotten that the platforms operate in a regulatory context with which they have sparred on more than one occasion. Even if this is not a direct indicator of the impact of multisided platforms in an industry, the legislative framework helps define their feasibility, limiting or not the ability of the subjects involved to act.
But when a platform enters a market, what is the impact on companies present in the sector? In some cases the impact is so to speak limited to the replacement of the class of assets aimed at capturing the value generated on that market, such as ticket sales or marketing activities; think of Booking.com or eDreams in the travel industry. In others, the substitution also affects core assets, i.e. the very heart of the company offer that creates value. For example, this the case of some Fintech platforms or, to return to the hospitality industry, the case of Airbnb.
The consideration of the three classes of factors mentioned therefore becomes useful for understanding the potential impact of a platform, or participation in a platform, on a company, but also helps build government policies for facilitating or regulating these entities.