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04.10.2019 #news

The Next Disruption for Platform Capitalism: Part 1

The Next Disruption for Platform Capitalism: Part 1

A few weeks ago, my parents went abroad for the first time in a decade. This was a watershed moment as my mother’s love for dogs has proven to be a prohibiting factor for holiday choice. She has two dogs and a mistrust of kennels, before this trip their most exotic trip was to Northern Ireland and the ferry crossing was something of a drama. But thanks to ‘Borrow my doggy’ she was able to match Pepsi and Daisy with some local dog lovers to share the care.

Uber, AirBnB, eBay, Facebook, Amazon, Upwork, Tinder, Taskrabbit and Borrow my doggy are all examples of multisided propositions which have had success at matching supply and demand by playing the intermediary role – the platform on which users connect. This blog isn’t an assessment of the merits of the platform economy (aka the gig economy, the sharing economy, the on-demand economy etc. There are plenty of blogs about those.) This is a prediction of ‘what’s next’ for platform models founded in some basic economic theory.

Market design theory

In 2012 Alvin Roth won the Nobel prize for economics for his work on market design. He developed three simple principles which enable a market to exist and demonstrated the effectiveness of these principles in kidney donation, saving thousands of lives in the process. Read about that here. His framework, when applied to new platform models, can help us understand why they have been so successful and what is to come next.

Let’s start with the principles. For markets to be successful they must:

1. Provide thickness—that is, they need to attract a sufficient proportion of potential market participants (supply and demand) to come together ready to transact with one another

2. Overcome the congestion that thickness can bring, by providing enough time, or by making transactions slick enough, so that market participants can consider enough alternative possible transactions to arrive at satisfactory ones

3. Make it safe to participate in the market as simply as possible – by making it better to transact within the marketplace than outside of it and make playing by the rules better than breaking them

For example, Uber works because it:

1. Provides thickness: Plenty of drivers near plenty of ride seekers

2. Overcomes the congestion of all drivers and ride seekers: Smartphones with GPS make it easy to find a ride / passenger

3. Makes it safe to participate: Drivers are licenced, passengers always pay and both have a reputation score

Tinder works because it:

1. Provides thickness: Plenty of single guys near plenty of single girls

2. Overcomes the congestion of all the singletons: Smartphones + GPS + photos make it easy to choose between possible matches

3. Make it safe to participate: Connecting to Facebook and Instagram plus a chat function makes it possible to check a person is who they say they are

What’s next?

The commonality between successful platforms is that technology (such as mobile devices, the internet of things, the cloud etc.) make it very easy to connect market participants and overcome congestion.

The most curious thing about ‘borrow my doggy’ is the third principle: safety. My parents believe that the market is safe to participate in. Borrow my doggy’s verification process, meet ups, insurance, and 24/7 vet line make people feel like they can trust the ‘borrowers’ to provide attentive and loving care for their much-loved pups – even more so than the incumbent model of professional dog kennels.

Satisfying the safety principle for more trusted services is going to open up platform capitalism to some fascinating areas. Recently, I participated in a government policy discussion on adult social care – which is frequently described as being in crisis. One of the challenges is efficiently matching care services to those that require care. Something platform models could be brilliant at.

Rather than dog sitting, what about childcare for your baby? Or adult social care; would you be prepared for a crowdsourced stranger to look after your grandma overnight? How about checking Grandad into the spare bedroom of a friendly home and freeing up a hospital bed? Solving safety gets harder as vulnerability increases. In part two I will explain the challenge of safety and propose an approach to solving it.


By Patrick Harding