The Governance of Platforms

Platforms (e.g. Facebook, YouTube, Amazon, Android, Flipkart, Uber, Swiggy) have to juggle conflicting needs, write the authors of The Business of Platforms. On the one hand, they want more and more people on their platforms. They also want those people to add value (e.g. by posting more material, writing more apps etc). On the other hand:

“(They aim at) minimizing low-quality transactions, such as weeding out low-quality goods and services, facilitating return in case of unsatisfied customers, and fighting fraud.”

 

But if they go too far on the latter, they are accused of censorship (Facebook, Twitter, YouTube). Don’t do enough and they are accused of allowing everything – counterfeits (Amazon), porn (YouTube), and fake news (Facebook).

 

The authors call this fine balancing act as “platform governance”. It gets even more complicated and messy when the platform tries to sell/promote its own products. That raises accusations of conflict of interest. Examples include (1) Android makes Google the default search engine, and comes with Chrome as the browser; (2) Amazon pushes its own products in its search results, (3) Apple makes its own Maps app the default one for the iPhone, (4) Microsoft made its own Internet Explorer and Windows Player the defaults on Windows OS.

 

As the authors say:

“One dominant platform after another has fallen into a similar trap of probably unnecessary paranoia followed by an abuse of power.”

On that front, Intel in the 80’s was proactive. After seeing AT&T broken into separate pieces by the US government on charges of abuse of monopolistic powers, Andy Grove, Intel’s CEO, “introduced strict internal procedures to minimize Intel’s exposure to antitrust (anti-monopolist) scrutiny”.

 

The most interesting/amusing example I saw on this topic was on how different cultures view the counterfeiting of goods. When eBay, an American company, went to China, it decided to take steps against the counterfeit products sold via its site. It promptly ended up losing 20-40% of its users! Its Chinese competitor, Ali Baba, benefited from this. Why?

“(The average Chinese) wanted access to fake goods and bought them knowingly.”

The Chinese want to own the status symbol in China – even if it’s fake. The West views counterfeiting as a form of theft, a violation of copyright and trademarks. No wonder platforms often struggle when they hit the culture barrier… But not always, as Facebook and Tik Tok have successfully shown.

 

Ultimately, it’s that paraphrased line from Spiderman that holds:

“Growing (platform) power means growing responsibility.”