Platform Capitalism: Data Collection and Business Models
This text, based on the work of Nick Srnicek, explains the characteristics of five types of platforms that exist today and the importance of data collection for them.
Advertising Platforms
Advertising platforms were the first attempts to build a business model suitable for the digital age. They arose as a result of the dot-com bubble burst, made possible by:
- Many competitors collapsed, leaving different areas of the technology industry under the control of the remaining companies.
- The depletion of capital and equity financing made internet-based businesses look for ways to generate income.
These types of companies pioneered the purchase of online advertising. Two examples are Google and Facebook.
Advertising platforms generate revenue by extracting data from online user activities, analyzing that data, and auctioning advertising space to advertisers. These platforms monitor and record online activities; the more users, the more information. However, the key to revenue is not only data collection but also data analysis. Advertisers seek data that provides them with valuable information, so the data needs to be analyzed. Therefore, what these companies sell to advertisers is the promise that software will match advertisers with the right users when necessary.
These companies make three uses of their cash:
- Saving that money
- Expenditure on mergers and acquisitions
- Investment in the creation of technological companies
Cloud Platforms
Cloud platforms represent a step that has consolidated the platform as a unique and powerful business model. The use of platforms pushes workers’ knowledge outwards and allows for the automation of their work. Currently, each area of the economy is increasingly integrated with a digital layer, so having the necessary infrastructure for any industry is a very profitable position. The goal of such platforms is not to rely on advertisers purchasing data; instead, they seek to build an infrastructure that can be cost-effectively rented to others while collecting data for their own uses.
Industrial Platforms
Regarding industrial platforms, the most important attempt to introduce platforms into traditional manufacturing has been the Industrial Internet, which involves the integration of sensors and computer chips into the production and logistics process, all connected via the internet. The idea is for each production component to be able to communicate with the machines without the intervention of workers. This vision promises to make the production process more efficient, reducing costs and downtime. In addition, it aims to link the production process with the realization process. Today, these platforms are already a source of revenue for companies. An example is Predix, which contributes $500 million to GE.
Product Platforms
Product platforms are one of the major means by which companies try to reduce marginal costs on some products to zero. Music is an example of this. Due to the ability to download music for free, the income of record labels was reduced. However, with the creation of new platforms such as Spotify and Pandora, the music industry has grown again.
Another example is Rolls-Royce, which manufactures engines for airplanes. Airlines do not buy the engine but pay a fee for each hour it is used.