Why is there so much interest in platforms today?
Platforms create a lot of value by organizing the content market. They are the new intermediaries. YouTube, for example, provides the basic infrastructure for connecting creators of video with consumers of video. Platforms are the matchmakers and the taste-makers in today’s digital content market and are gaining huge market power, which, in the long-term, may have a negative impact on the creative sector.
Platforms are the matchmakers and the taste-makers in today’s digital content market and are gaining huge market power.
How do you explain the rise of the platform economy?
The content market has been transformed by digitization over the past 20 years. In the pre-digital era, content was monetized and distributed via a bundle. For example, music was bundled into an album, tied to a CD, and pushed out. In the digital world content became divorced from physical media. Digitization enabled content to move freely at near zero cost. Content could be unbundled and packaged in new ways. Then, as new sources of supply emerged with the availability of online tools that allowed anyone to create content cheaply, we saw an explosion in content production. Consumers found it increasingly difficult to find the content they wanted. Platforms were a natural solution to this problem. They began curating content and helping consumers find the books, films and music they wanted and to decide what was worth consuming through their recommendation systems.
In the music industry, CDs gave way to Napster and Kazaa, which offered a new distribution model for singles. Fast forward a few years and Apple began offering tools for musicians to record music, creating new supply tied to the Apple iTunes store, where musicians could upload and sell individual tracks. Then Spotify and Pandora emerged, assembling and curating music from different sources and enabling users to filter their favorite songs and benefit from their recommendation systems. Similar trends are evident across the creative sector.
Because there are so many connected consumers and so many suppliers of creative content, the companies that create a platform to organize the content market occupy the most powerful position in the content market today. In effect, they determine what content is shown and to whom.
What makes platforms so powerful?
Platforms have control points; in particular, their unique understanding of their users, resulting from data we provide every time we consume content on a platform, and their recommendation systems, which enable them to attract even more consumers and draw in even more creators. This gives them huge market power. With high-quality consumer data, platforms get to know more about the kind of content that works than the content industry itself, and then start moving into production. Netflix has done this and Spotify is starting to do so. At this point, platforms start creating lock-in mechanisms that make it inconvenient to leave the platform...