How Platform Capitalism generates new monopolies and concentration of power.

Platform capitalism is a high definition snapshot of the current economic situation. But what exactly is platform capitalism and what are the effects?

Working in the cloud makes an office unnecessary, with streaming services your entire music library is always available, with Uber you are a taxi driver whenever you want and social media enable us to communicate in a horizontal and direct way. If you believe techno-optimists,  the new digital revolution rhymes with freedom and happiness.

The fact is that digitization did not lead to the utopia that techno-opitimists predicted. A smartphone is at least as addictive as liberating and sites such as Uber or Airbnb contribute to far-reaching precarization. Also social media did not bring the utopia of freedom or power-free communication, they saddled us with fake news and a far-reaching reduction of privacy.

Yet it remains amazing how few attempts are made to understand the real economic meaning of what we call digitization. One of the few who tries this is the Brit Nick Snricek. In his book Platform Capitalism he analyzes the digital economy and what it tells us about our current economy.

The central position of Snricek is that what we call digitization actually heralds a new phase of capitalism. What we are experiencing today is the rise of platform capitalism. It is a capitalism based on new technologies, new forms of profit maximization and new types of labor. Actually, it is a fundamental economic reorganization that is comparable with the introduction of factories or railways: it leads to a whole new economic and social reality. And it is that reality that is hardly understood today.

The new gold

Platform capitalism is a capitalism in which data is the new gold. An increasing part of the economy is focused on gaining access to and unlocking new data and developing techniques for analyzing that data. Access to more data enables companies to improve existing algorithms, to make production processes more efficient and to turn low profitable products into lucrative services. And especially: the greater the access to data and the better the techniques for processing data, the more useful data can be unlocked.

The notorious algorithms on Facebook, for example, have the ability to determine what your personality type is, what your potential purchasing behavior is and how you relate to other contacts. In this way, they can make predictions about future behavior. All this would be possible with only 200 likes... Thus one set of data opens the door to a multitude of other datasets.


In an economy centered around data, it becomes crucial to develop methods to collect and analyze as much data as possible. The best way to do that is to develop digital platforms. The platform is for platform capitalism what the factory was for industrial capitalism. It is the instrument with which value is created, in which raw materials (primary data) are collected and processed into usable, lucrative products (analyzed data).

In the most elementary sense, a platform is a digital place in which two or more groups can interact with each other. It is a place where all those interactions can be recorded and analyzed.

Platforms are not neutral spaces, they aim to produce certain types of interactions  and generate certain types of data. The power lies with those who design the platform and manage and monopolize the produced data. The new possessing class is a class that mainly knows how to collect tons of data.

Outsourcing

We all know platforms like Twitter of Facebook. Yet these social media are only a small and insignificant part of platform capitalism. Grosso modo you have five different types of platforms. Facebook and Twitter can be viewed as advertising platforms. These are platforms that, based on collected data, want to connect the right users with the right advertisers and get the most revenue from advertisements.

Also known are the 'product platforms' and 'lean platforms'. The best known 'lean platforms' are Uber and Airbnb. They can be called 'lean platforms' because they themselves do not produce or offer anything, but rather facilitate or create the contact between supply and demand. For example, Uber does not own taxis, just as Airbnb does not have beds or rooms. This is also the main difference between 'product platforms' and 'lean platforms'. Unlike 'lean platforms', 'product platforms' do offer products. The best example here is a streaming service such as Spotify.

The most important and revolutionary platforms are those that are virtually invisible. Invisible, because they are mainly used in production processes, so there is no direct contact with consumers. In this context, the so-called 'cloud platforms' are very interesting. 'Cloud platforms' originated from an internal necessity within companies. For example, Amazon developed an internal platform, Amazon Web Services (AWS), to organize its own logistic operations as efficiently as possible. It is a platform that keeps track of, analyzes and optimizes data about customers, routes, products and such.

Once this internal platform was developed, Amazon soon realized that the developed technology could be let to other companies. After all, analysis of data, storage space or keeping track of customer data are matters where most companies do not have the necessary know-how to organize it themselves.

In fact, it is a kind of outsourcing of information technology. It is important to understand that these companies, of course, remain the owner of the cloud platforms they offer. In this way they acquire ever greater power within different sectors.

Industrial platforms have a lot in common with the cloud platforms. They too arose from an internal need of companies, but then specifically in the industrial sector. As in other sectors, a digital revolution has taken place in the industrial process. Machines are equipped with sensors and chips, connected to the 'internet of things' and thus generate a mass of data. For example, General Electric develops more data in its production than Facebook.

In order to collect and process all these data, platforms are also used. These platforms are developed and used by internal companies (General Electric and Siemens for example) but also by external companies that are not active in the industry (eg Microsoft and Intel).

Again the same mechanism applies here as with the cloud platforms. Companies that develop industrial platforms rent the developed technology and expertise to other companies and in this way seize new data.

Monopoly and power

Today a true data rush takes place. Companies that are active within platform capitalism try to confiscate as many data as possible in a very aggressive manner. It is therefore a new form of competition, one that is not focused on the best price or the most efficient production but the accumulation of data. This is accompanied by a policy of privatization and the creation of new dependency relations.

Facebook, for example, is experimenting with the development of a chatbot that could compete with Google and would also privatize most of the internet. Any possible question you have, you can ask that chatbot. An answer follows immediately. That way you basically never have to leave the interface of Facebook. It is in line with a more general trend whereby users are increasingly 'locked up' in a certain environment.

In platform capitalism there is a tendency to monopolize. This has a lot to do with the way platforms function. On platforms you can speak of network effects, that is to say: the more interaction and data, the stronger and more efficient the platform becomes and the less competition becomes possible.

We all know that effect. For example, look at Facebook: the social network has become so big and therefore so strong that it is very difficult to compete with it. Several attempts to this have always failed. But this effect does not only work with Facebook, it also functions very well with the other types of platforms. The result is that a very limited number of players is gaining power in an increasing number of sectors.

Bubble

Yet platform capitalism also has its weak spots. Some platforms are based on the 'growth before profit' model. That means that growth is considered more important than profit. For example, Uber, Twitter or Snapchat are not profitable at all, but they do grow quickly and are therefore attractive to investors. That kind of platforms threaten to eventually become bubbles if they do not become profitable in the long term. It is a scenario that is strongly reminiscent of the dotcom bubble in the early 2000s.



Platforms that are used in production will probably be more permanent, and only gain importance. That is not without danger. Because it means that the basic infrastructure of our society - communication, energy, industry, distribution - is increasingly in the hands of a small group of powerful companies. Through various platforms, various sectors are taken over from within and this will in time lead to major democratic challenges. The coming battle will therefore also be one for the democratization of existing platforms and the establishment of new, democratic platforms that make data available and share publicly.

Hello blockchain technology!

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