Platform Economy

The form of hyperglobalisation that expanded around the turn of the millennium was

based on neoliberal economic theory. It was marked by a reduction in trade barriers, the

development of outsourcing and global supply chains, the privatization of state assets and the

shift of power from national legislation to multinational institutions, the massive expansion of

the global financial market and the formation of the global cities network. But, the financial

crisis was to bring this massive expansion in economic exchange to a shattering end.

The global flow of goods, finance, and services flattened. The well-accepted truths of the

free market became reopened for questioning as multinational organizations like the IMF and

World Bank have come to have less influence. Through the financial crisis, the political

establishment in developed economies became increasingly delegitimatize as nationalism began

to once again expand.

While many speculated about the end of globalization underneath the ashes, the seeds for

the next era of globalization had already been sown as a revolution in information technology

was continuing unabated. The model for globalization was transforming. The globalization of

today is no longer driven by increasing exchange of goods but instead information and services,

while political organization remains divided soaring flows of cross-border data are taking global

integration to new levels as we approach four billion people connected to the internet. These

huge flows of data and the platforms that orchestrate them have become the new architecture to

globalization.

The story of globalization as it has unfolded over the past decades has been one of the

new set of information technologies enabling the development of a global, economic, and
financial system that brings humanity into a commonly shared value system mediated by

markets. In the past, the linkage between the underlying information technology and the

institutional structures that resided on them was not apparent. Globalization was seen to be

driven by the institutional structure of the multinational corporation of trade-free agreements of

financial markets and the physical connectivity of the global city and global air and shipping

networks. But after the financial crisis, this started to change. As the underlying information

technology began to mature, there was an inflection point. Everything was staring to shift into

the realm of technology and information. With the development of the second generation of web

technologies, mobile and cloud computing and the rise of online platforms, the world was about

to become connected in unimaginable new ways. As the underlying technology and software

platforms matured, networks were starting to take over the coordination of critical aspects of

human organization. The internet was now moving from being a decoration on industrial

societies to becoming the core infrastructure – mediating global economic exchange. Information

technology and economic markets were about to converge in a new model of the platform.

Economic and social organization were starting to be channeled directly through this global

information network – giving rise to what is called the platform economy. For thousands of

years, markets and hierarchies were the only alternatives when it came to aggregating human

effort. But through the financial crisis, both the markets and social institutions of the Industrial

Age had shown their limitations. Now, technology was starting to show the third option. Real-

time distributed information-based networks. The critical economic aspect that started to change

with the rise of information technology was the placing of the means of the production into the

hands of many and the interconnectivity between them through which they connect, collaborate,

and exchange value outside of the traditional centralized structures. For the first time since the
Industrial Revolution, the most important inputs into the core economic activities of the most

advanced economies came to be widely distributed in the population. It began with computation

storage and communication but is increasingly expanding to all areas including material

production. At the same time, network communications dropped transaction costs to a very low

level making it much easier for people to set up their own networks for collaboration, value

creation and exchange without traditional formal organization. This meant that the production of

information and knowledge could happen without large investments of capital and overhead

costs of management and transaction fees. This in turn allowed for production to move outside of

the domain of the market and more into the domain of peer production within social networks

based upon a more complex set of motives and values than those of the pure market logic. We

saw this first with open-source software core aspects of what used to be an industrial information

and cultural economy turned into a social production economy that began to seriously compete

with the major economic actors and destabilize power disrupting traditional market logic in new

ways that were previously almost unthought-of. These new online organizations leveraged a

critical new advantage that was made possible by the information networked economy, loosely

coupled distributed collaboration around a common resource to deliver overall efficiency –

something that was significantly absent in the neoliberal efficient market model constructed

around closed organizations competing. As the first generation of web technologies were all

about the exchange of ideas, media and information, it had little direct impact on the global

economy. However, this began to change with the development of a new set of server-side

technologies that led to web 2.0 where people can both read from the internet and write to it.

This new technology made it possible for people to interact through collaborative platforms both

producing and consuming content – creating new forms of user-generated systems as a means of
production and exchange of value, not just of information and ideas but increasingly of physical

assets. The critical economic aspect that changed with the second-generation web around 2012

and 2014 is that the set of resources that people were sharing moved primarily from being

information, knowledge, and culture shared primarily in social networks of informal free social

exchange to models where people were making money via the provision of services like driving

someone on Uber or online staffing platforms connecting enterprises and workers on demand.

Companies like Airbnb rapidly built multibillion-dollar global businesses reaching vast

borderless communities via internet platforms.

In this respect, the platform economy can be seen as the merging of the social networks

and collaborative platforms of early web 2.0 with the market as it caught up with the new

technology and worked to commercialize the new possibilities for economic activity mediated

through information networks. The result was that the early social free and sharing model got

somewhat displaced by the market model but also merged in new ways. These organizations

absorbed the networked user-generated model for production and exchange of services into a

new platform market model while greatly reducing the centralized organization that managed

them.

Within just a few short years, platforms rapidly scaled to become major actors in the

global economy whose scale and profits few could ignore the internet was staring to come of age

as a system of economic organization. In September 2014, the Chinese online commerce

company, Alibaba Group, conducted its initial public offering – the largest ever in history. This

event attracted considerable media attention. Some of it naturally commenting on the changing

balance of the global economy and the growing impact of platforms within just a decade of their

origins. Platforms came to dominate the list of largest corporations by market capitalization as
people started to take seriously – this emerging internet-based economy. These platforms

managed to tap into the new possibilities created by widespread mobile connectivity and the

coordinating power of advanced technologies to create scale and serve untapped markets more

rapidly than ever seen before. They match suppliers and producers within two-sided markets and

harness the untapped resources of the end-user to meet basic human needs and desires in ways

that would be beyond the imagination and capacities of the traditional-closed enterprise. They

activate communities of individuals and resources in new ways accelerating innovation and

challenging major incumbents.

This new model to globalization is changing who is participating, how business is done

internationally, where the economic benefits are flowing and how fast the competitive landscape

changes even though advanced economies, in general, continue to be the leaders in most flows.

The door has opened to more countries to small companies and startups and even to billions of

individuals whereas previously corporations would have to build their own IT infrastructure at

great cost in time. This is now instantly available for anyone with an internet connection and the

know-how. As such success in the global economy becomes much more linked to technical

know-how innovation and entrepreneurial drive rather than finance and capital assets. This new

digital model of globalization is much less capital intensive rather than establishing a large

physical presence in many countries. Some companies focus local offices on sales and marketing

only. Those that deliver digital goods and services can enter new international markets without

establishing a physical presence at all. Globalization is no longer a hunt for the cheapest labor

with automation and the shift into an information services economy, production can be restored

to be close to end demand and sources of high skilled workers. Added to this, 3D printing and
other distributed technology will in the not-too-distant future have an impact on supply networks

and the cross-border trade landscape.

The potential for a new distributed form of globalization is now forming based on

information networks that link people directly into a common global platform economy. The

global networks that proliferated with the previous round of globalization are transforming to

become richer and deeper and more distributed through the proliferation of information

technology. This has the potential to bypass the centralized hubs that previously dominated the

global economy as people and places that were previously on the fringes can become more

directly connected into this newly forming global system of economic organization.

In the past decades, this process of economic transformation was driven by corporate

structures and the financial system who will, of course, continue to play a major role but after the

platform revolution going forward, the center of this process of change will be happening on the

Internet as technology and economic development are starting to become one. The platform

economy took us one step closer to merging our newly created web-based networks with the

management of our global economy. It gave us a greater glimpse into the emerging networked

economy and for the scale of change underway as the term disruption became the new buzzword.

However, it is safe to say that the largest, deepest, and most disruptive structural changes are still

ahead of us as the information revolution continues at full pace with a new technology paradigm

emerging that will have profound economic consequences – consequences that go far beyond

what we have seen to date and may will happen at an even faster pace.

Summary
 Trade barriers were reduced, governmental assets were privatized, and authority shifted

from national laws to transnational organizations throughout the postwar period.

As nationalism began to resurface after WWII, international agencies such as the IMF

and World Bank became more delegitimized. Global trade in products, finance, and services has

leveled. As multinational businesses' power has waned, long-held beliefs about the free market

have been called into doubt.

Today's globalization is driven by information and services, but political structure

remains fractured. Meanwhile, massive quantities of cross-border data are pushing global

integration to new heights. These massive data flows, as well as the platforms that coordinate

them, have become the new globalization architecture.

Following the financial crisis, there was a tipping moment when everything began to shift

into the sphere of technology and information. Networks began to take over the coordination of

important parts of human organization as the underlying technology and software platforms

evolved. When it comes to pooling human work, markets and hierarchy were the only options for

thousands of years. Technology was now demonstrating a third possibility - real-time dispersed

information-based networks. The second generation of the internet makes it simpler for people to

create and trade value without the need for formal organization.

This meant that information and knowledge could be created without the need for big

financial expenditures or administration and transaction fees. The critical economic aspect that

changed with the second-generation web was that the resources that people shared shifted

primarily from being information, knowledge, and culture shared primarily in informal free
social exchange social networks to models where people made money by providing services like

Uber or online staffing platforms connecting enterprises and workers on demand.

Early web 2.0 social networks and collaborative platforms were fused with the market as

it tried to monetize new economic activity possibilities mediated by information networks. The

early social free and sharing model was supplanted partially by the commercial model, but it also

blended in new ways. The networked user-generated paradigm for service development and

exchange was absorbed by these companies, resulting in a new platform market model.

Alibaba Group, the Chinese internet retailer, launched the biggest initial public offering

in history in September 2014. These platforms were able to capitalize on the new opportunities

presented by broad mobile connection and the coordinating power of modern technology. They

connect suppliers and manufacturers in two-sided markets and capitalize on the end-untapped

user's potential.

The door has been opened to new nations, small businesses and startups, and even

billions of people. Success in the global economy is increasingly dependent on technological

know-how, creativity, and entrepreneurial drive, rather than cash and material assets. Some

corporations concentrate their local offices only on sales and marketing. Those that provide

digital products and services have the ability to join new international markets without building

any physical presence.

Through the expansion of information technology, the global networks that expanded

during the last phase of globalization are evolving to become richer, deeper, and more diffused.

This has the ability to circumvent the centralized centers that historically dominated the global
economy. People and locations that were formerly on the periphery can become more closely

linked into this rapidly developing global economic framework.

The platform economy brought us one step closer to integrating our newly established

web-based networks with the administration of our global economy. As the term disruption

became the new buzzword, it provided us with a better understanding of the growing networked

economy and the degree of change that was taking place. However, it is reasonable to assume

that the most significant, profound, and disruptive structural changes are yet to come. The

information revolution is still in full swing, with a new technological paradigm forming that will

have far-reaching economic ramifications.