The problem with platforms

There is a nice little piece of research on evolution I bet you’ve never even heard of.  Sure, we’ve all quoted Darwin at some stage as a broad sweeping comparison to business.  How many of us have gone beyond this and actually looked at what this seemingly parallel science can tell us?

In essence, the study I quote here found that the rates of evolution increase if change benefits the general population and decrease if it doesn’t.  The bigger the population, the greater the pendulum swings.

Makes sense, right?  If it’s good for us, we want more.  If it’s not, then we want less.  The rate of change in the population adjusts accordingly.

That’s certainly something to think about as we look at the current crop of technology platforms that have littered our lives.  The increased call for regulation globally and the occasional public backlash is perhaps evidence that in some cases, we’ve got the question of civic value seriously wrong.

Co-incidentally, Uber’s (and Lyft’s) IPO has also lifted the skirt on the realities of platform economics.  Essentially all Uber (and Lyft) have done is made personal transport services uneconomical for everyone.  

Without intervention, the long-term impacts of that are likely to get ugly for someone.  In this case, quite possibly Uber’s investors. Is the platform model about to come all crashing down?  I don’t think so, but certainly platforms don’t come without their problems.

In any given ecosystem, platforms generally do two things:

  1. They reduce the barrier to entry.  That is, they make it easier to engage into a given market, network, or ecosystem.
  2. They reduce the transactional overhead.  Platforms bring a variety of functional, social, and emotional benefits that on the whole, make it easier to transact.

Together, they can significantly change the market dynamic.  Either supply goes up, demand goes up, or both.  For good or bad, pricing and profitability normally follow.

But what if there isn’t room to significantly change the market dynamic?  Then you might have a problem.  If you’re running in a mature market that is both low margin and low value, any solution that messes with those numbers for the negative is going to have problems.

Let’s pick up a couple of well-known industries like, oh I don’t know, food services and personal transport.  Both nominally run on mid to low single digit margins.  Both driven off the backs of employees on low to minimum wage.   

There isn’t much room there to futz with the maths! And when you do, there are  protests in the streets.

What does this all ultimately mean? Platforms have the proven power to drive market forces of “essential services” below what would otherwise be socially, and economically acceptable.  Normally when that happens, governments move (usually with regulation) to protect the common good. 

Is this where regulation of the Taxi industry all the started?  To be honest I’m not sure, but my quick google suggests safety and pricing regularities may have played a part.  At any rate, we all know by now where that ended up.

With the IPO, Uber’s intimate details are well reported.  Without a near term solution to autonomous vehicles their platform viability is being rightly questioned.  In the meantime we have a gap between a solution that is economically and socially marginal for humans to do (especially in Australia), and the viability of technology to replace them.

Uber is not alone.  There are lots of business tasks that fit in this window.  Specifically, data entry is one and clearly manufacturing has had its moments.  As a technologist, I would also argue there are plenty of activities in IT that are potentially, not long away.

We as a businesses and society need to decide if we’re ok with this.  If we’re not, we need to consider the impacts of our solutions on the very markets from which we profit.  That may mean either a social or legal market intervention.  Or perhaps we just need to have a better grasp of the civic impacts our solutions bring before governments step in.

Either way, it is being increasingly said the era of move fast and break things is over.   I certainly do hope so.  If nothing else, it may be necessary for the good of the industry that perhaps started it and the society that has to live in it.

Image copyright Sam Valadi