Keep calm and let platforms carry on

Certain European officials seem to be suffering from a disorder called platform anxiety — the fear that arises because US firms are the leaders in creating business platforms. As is often the case, these officials are self-medicating by imposing regulations on others. While this may be a fulfilling activity for the officials in question, though probably not for the firms being regulated, it does little to address the real problem: Governments are feeling left out of the platform economy.

What is the platform economy?

The platform economy is the system of Internet-based businesses that match people, organizations, and resources for social, political, and economic exchange and innovation. Examples of such businesses include Google, Amazon, Uber, Airbnb, LinkedIn, and Alibaba. A revealing diagram developed at the Center for Global Enterprise shows 11 major categories of platforms worldwide, including social media, music, gaming, e-commerce, and education. The platform types overlap, with some healthcare, media, and financial functions showing up in social media, for example. Platforms have certain degrees of interconnectedness — between Google and Amazon, for example — so that they can leverage each other’s network effects, but the interconnections are limited lest a platform overly dilute its own network effects in providing them to others. Many platforms operate globally. Research suggests that American firms dominate the platform economy with Google, Apple, Facebook, and Amazon attracting significant attention worldwide, and that Europe is lagging, but platforms are springing up all over the world. A survey at the Center for Global Enterprise found Asia to be home to the largest number of platforms — 82 — but North America’s 64 platform businesses had the largest capitalization: $3.1 trillion vs. $930 billion for the Asian platforms. Africa is also developing a number of thriving platforms.

Motivations for regulation

Allowing the progress of a global platform economy without a government overseer must cause a cognitive dissonance for those whose political philosophies see the state as the ultimate authority. This could explain the French push for a European platform-rating agency that would establish standards and evaluate platform performance. Some European officials believe that new regulations will lead to the emergence of European digital champions. The central regulatory features for promoting this renaissance would be new transparency regulations, focusing largely on personal information and data access, and rules that would make it easier for customers to switch platforms — in part by transporting data from one platform to another.

A better treatment for platform anxiety disorder

It is unsurprising that European officials are frustrated; after all, over 20 years of European Information Society planning, studies, and regulations have failed to put Europe in the digital forefront. But doubling down probably isn’t the answer. The regulations under consideration in Europe may throttle the growth of foreign platforms in Europe, but it will be at a cost to European consumers. Another layer of regulation won’t quicken the pace of innovation. Indeed, ramping up privacy regulations will hinder European and foreign platforms alike, and forcing platforms to give up the value they have created by gaining customers, information, and transactions will leave Europeans behind while platform activity flourishes elsewhere. What is needed for European officials as an initial step is adaptive learning — namely, accepting the idea that the European approach might not be working, and exploring with an open mind the ecosystems that are spawning success elsewhere. And then there will be a need for adaptive leadership, namely helping the citizens, businesses, politicians and bureaucrats of Europe accept customer and business failure as normal in an evolutionary process. If Europe wants to become a major player in the global platform economy, European regulators need to keep calm and let platform markets carry on.

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