PLATFORMS IN AOTEAROA OUR FAST-GROWING SHARING ECONOMY Kevin Jenkins The Otago Farmers Market Photo: Liz Sinclair My favourite farmers’ market in Aotearoa is in Dunedin. Digital platforms Talk of ‘platforms’ – or the ‘sharing Over the warmer months it has the best fresh produce in economy’ – sometimes seems to be New Zealand: Central Otago apricots the size of peaches, old- ubiquitous. But how significant is this model, and what kinds of policy and school gooseberries, greengage plums. But the Otago Farmers regulatory issues is it raising? Market also offers a physical pun. It’s at Dunedin’s famous As Facebook, Amazon, Ali Baba, Tencent, Uber and so on have grown to Railway Station, and there on the station platform you’ll dominance over the last decade, these huge also find many artisan products, like seaweed condiments, digital marketplaces have become the face of the model. However, the repeated citing craft beer, and bread of every kind. A ‘platform’, according of just this small group of behemoths has obscured the true depth and breadth of the to Choudary and Parker, is ‘a business model that uses platform phenomenon, and also the pace technology to connect people, organisations and resources in of change. The model is expanding and innovating quickly, and much of this is at ecosystems to exchange goods, services and ideas’ (Choudary smaller, local scales. and Parker, 2016). Take a broad view of ‘technology’ and the With the focus on the big international players, it’s easy to overlook the fact that Otago Farmers Market is a platform on a platform. this model is becoming pervasive here in New Zealand. The collective benefits these Kevin Jenkins is Managing Director of professional services firm MartinJenkins, a Director of the local platforms will provide will be digital automation firm Quanton, and Chair of the School of Government Advisory Board at Victoria enormous, making the lives of New University of Wellington. Page 10 – Policy Quarterly – Volume 14, Issue 1 – February 2018 Zealanders better. But, as throughout the (the ‘why’), often with added value through adds that platforms ‘enable scale by world, there are also significant policy and an algorithm (so that users receive only the allowing others to generate profits in the regulatory challenges that need to be most valuable information). Second (the “long tail” of the distribution curve – worked through. ‘how’), they enable a great user experience avoiding diminishing returns associated when attracting, facilitating and matching with traditional (linear) value chain How we talk about digital platforms transactions. The third characteristic is the models’. They also enable asymmetric The language we use to describe digital layering of new interactions (Uber Eats is growth and competition by ‘driving the platforms is not yet settled, and this a recent New Zealand example). demand of a core market through matters because it in part reflects different complementary markets, which are often perspectives and interests, as Kenney and Choudary and Parker use the Uber subsidized (or free) to users and which Zysman have pointed out. ‘Platforms’ is the example to explain why platforms are cross industry lines’ (Accenture, 2016). term used by more academic commentators, so powerful:they eliminate gatekeepers, Parker and Van Alstyne (2016) argue but common parlance generally favours unlock new supply and demand and that platforms invert companies, ‘the sharing economy’, which suggests create community feedback loops. transforming their traditional focus on something more unambiguously benign. Uber, for example, performs a internal value creation to an outward focus Kenney and Zysman write: ‘Its boosters matching service that serves as a on external value creation. They also note have called it the Creative Economy or virtuous cycle. More demand is met by that their use of assets that they don’t own the Sharing Economy, whereas those less more opportunistic drivers, which allows them to grow much faster than convinced of its beneficence have dubbed increases geographic coverage, which traditional firms. it the Gig Economy or the Precariat’. They point out that Facebook is not based on ‘sharing’, but rather on monetising human A 2016 report by global technology effort and consumer assets, and they link this to some key policy and regulatory firm Accenture adds that platforms challenges: ‘the advantage of platform- ‘enable scale by allowing others to based companies often rests on an arbitrage between the practices adopted by platform generate profits in the “long tail” of the firms and the rules by which established companies operate, which are intended to distribution curve – avoiding diminishing protect customers, communities, workers, returns associated with traditional and markets’ (Kenney and Zysman, 2016, p.62). (linear) value chain models’. Rob Stock argues that calling platforms ‘the sharing economy’ is misleading, because very few of the people involved are actually sharing anything. Rather, leads to faster pickups, which Non-profit and cooperative platforms platforms are about ‘good, old-fashioned encourages more customers to join the But not all platforms are about making deals being done between asset owner, and platform and more people to sign up money for their owners. There is also a less asset hirer’. Using New Zealand-based as drivers. Driver downtime is lowered visible world made up of ‘many platforms platforms as examples, he breaks down and so are prices, which leads to more that have created massive value, but have those involved into ‘sharing opportunists’ scale. (ibid.) never made a profit, and don’t even strive (generating extra income from an existing to make money – on purpose’ (Evans and asset, like renting out a motorhome on They also note that this network effect Schmalensee, 2016, p.2). Both MasterCard Mighway); those driven by economic is different from that of the 20th-century (starting in 1966) and Visa (in 1971) were necessity (renting out a room on industrial era, which was primarily about not-for-profit membership associations LookAfterMe, an Airbnb-like platform for monopolies based on supply economies of that charged just enough to cover costs, mature women); and, finally, those scale. Digital platforms, by contrast, enable until they were IPO-ed into profit-making involved for purely commercial reasons the possibility of monopolies based on in the 2000s. (buying a car specifically to rent it out on demand economies of scale. Many other multi-sided platforms Yourdrive) (Stock, 2017). A 2011 collection of essays on platform haven’t made the leap to profit. Standard- economics suggests that two-sided setting organisations (SSOs) help members The power of the platform platforms arise where there are externalities agree on standards and publish them at low It seems that successful platforms have and where there are transaction costs that cost, or even free. These include those relating three key characteristics (Choudary and otherwise prevent the two sides solving the to mobile carriers, handset makers and chip Parker, 2016). First, they enable exchange externality directly (Evans, 2011). A 2016 providers. Evans and Schmalensee claim of value between producers and consumers report by global technology firm Accenture there are almost 1,000 SSOs, and that SSOs Policy Quarterly – Volume 14, Issue 1 – February 2018 – Page 11 Platforms in Aotearoa: our fast-growing sharing economy Figure 1: Ranking by number of companies manufacturing supply chains); and five Industry investment platforms (like Softbank, which eCommerce/Marketplace isn’t a platform as such, but has invested in Fintech Yahoo! Japan, Ali Baba, Housing.com in India and others). Internet Software and Services Evans and Gawer investigated which Social & Social/Messaging sectors the platform firms were most active Media in, and found that ranking sectors by the Transportation number of platforms in each one revealed a different pattern than ranking by market Travel value. (Evans and Gawer, 2016, p.17) Internet Software and Manufacturing This first international survey Internet, Search and Services discovered that there are some sectors Enterprise Software where platforms are yet to make much 01020304050 headway. Despite there being hundreds of Number of Records workplace platforms like TaskRabbit, Source: Evans and Gawer, 2016, p.17. which match demand for tasks with individuals and their skills, none has got Figure 2: Ranking by market value close to a US$1 billion valuation. Evans and Gawer wondered if ‘inherent Industry fragmentation by type of work and by Internet Software and Services geography may have caused lack of eCommerce/Marketplace scaling’ (ibid., p.17). The healthcare sector App Marketplaces and Manufacturing is another example. On the other hand, Search, AdTech and Services the lack of progress in those sectors may simply be a case of ‘watch this space’. Social/Messaging A number of traditional firms are now Media striving to add platforms (ibid.). Daimler, Enterprise Software for example, bought RideScout, a US transaction platform that aggregates IoT, Software and Manufacturing transportation and parking options in Travel real time, and MyTaxi, a German ride- Fintech sourcing platform akin to Uber. Time will tell how successful the traditional firms $0B $100B $200B $300B$400 B$500B $600 B$700B Company Market Cap will be at disrupting themselves, but many Source: Evans and Gawer, 2016, p.17. of the commentators on disruptive technologies are backing the new entrants.