We let platforms govern our lives but how to govern platforms?

Have you lately seen a business presentation that hasn’t mentioned Uber, Airbnb or Facebook?

Neither have we.

Platform companies do not operate like traditional companies selling products. Instead, platforms bring together users and resources and create business not just for themselves, but for a broader class of actors.

Discussing the platform economy is essential. Even more important is to consider life on platforms.

81% of executives say platform-based business models will be core to their growth strategy within three years.

What are the platforms?

1. Platforms are a way to save costs, increase efficiency and maintain a competitive advantage. Platforms remove friction between people and create more efficient markets first and foremost by lowering transaction costs. For example, Uber has lowered the transaction costs of finding someone willing to offer a low-cost ride. In this way, platforms provide a context where different groups can meet and collaborate.

2. Thus, platforms are sets of rules. Platforms dictate the interaction of their user. Uber, for example, claims to be an empty vessel for market forces, but among other things it a) predicts, where the demand for drivers will be and raises surge prices in advance of actual demand; b) creates phantom cabs to give an illusion of greater supply; and c) shapes the interaction between driver and passenger with reputation systems and highly structured apps. In the early days, Lyft, a competing ride-sharing company, required drivers to fist-bump customers to create a convivial atmosphere.

When everything, from clothes to food to apartments, becomes digitalised, the kinds of deals platforms are providing become an increasingly significant social question.

3. Platforms are where life happens. They program the behaviour of us all and will dictate how we behave in the future. They reduce our cognitive burden by minimising friction in face-to-face contact with new people. They build trust between people (and companies) who have no other reason to trust each other.

We have now lived through the phase, where the economic impacts of platforms were their most important feature. They will continue to play out in various ways, but to make future life on platforms possible, we must turn our attention to broader questions of how platforms regulate the life that is built on top of them and how the platforms should be regulated?

How could platforms be governed?

When governments regulate platforms, it’s about something more than just regulating businesses. Because platform companies themselves are sets of rules, governing platform companies is about regulating the regulation. That’s so complicated it’s better to consider on a few examples of existing governance mechanisms:

1. Control platforms through data

Airbnb has a rough history with the regulators of New York City. In 2015, however, the company shared their data with the city. The action is part of the company’s broad effort to convince local and national regulators that Airbnb is not a platform for so-called illegal hotel operators, who use it to skirt local housing laws and hotel restrictions to regularly rent properties to travellers.

2. Co-develop regulatory features of platforms

Estonia is the first country in Europe to fully legalise Uber. But before legalising it, the state negotiated an additional feature to the platform that links Uber drivers digitally to the tax office. This enables Estonia to collect taxes from Uber rides.

3. Create new legal entities

As platforms have become influential actors that set rules on how we interact, read news, shop and work, does it make sense to treat them in the same way we treat mom-and-pop hardware stores? Or should they be regulated as though they were essential utilities like electricity or water? New kinds of ownership models can be effective ways to create fairer structures to the platform companies (see more blog 3: Limited Liability Corporation is Dead, Long Live Responsible Ownership)

4. Ban them

This has been a popular strategy with Uber.

Related blogs

This blog series presents four theses on how to make sure that the future is a hyperconnected paradise rather than a dystopia. Each post presents one of the four theses that bring to life the Nordic promise of a hyperconnected society:

Introduction: How to build trust in the world, where tech giants are more powerful than governments?

Blog 1: It’s not enough to develop technology – If we want to benefit new technology, we need to shape the societal institutions

Blog 2: We let platforms govern our lives but how to govern platforms?

Blog 3: Limited Liability Corporation is Dead, Long Live Responsible Ownership

Blog 4: Hyperconnected technologies change how to do business – six value creation models that are successful in the future

This blog series is based on Demos Helsinki’s publication “The Nordic Digital Promise: Four Theses on a Hyperconnected Society”


Writer: Johannes Mikkonen

Please have a contact with Johannes if you want to discuss the theme and how digitalisation changes your organisation. Follow Johannes also in Twitter.

Article photo: Kevin Hendersen