Scene One: The Pandemic
In August 2020, Apple became the first company to reach a $2 trillion market cap. That same month, Amazon’s Jeff Bezos became the first man to reach a personal net worth of $200 billion.
Even as most companies struggle to cope with the realities of a post-pandemic world, the platform firms—Amazon, Google, Microsoft, Apple, Facebook—have performed exceptionally well. Relatively smaller firms like Netflix and Shopify have also generated significant shareholder value.
The impact of platform firms during the pandemic has extended far beyond gains in the stock market alone. Google and Apple have joined forces to launch the Google–Apple contact tracing (GACT) platform, which uses application programming interfaces (APIs), Bluetooth technology and operating system (OS) level changes to assist in contact tracing.
While most supply chains reeled under the effect of the pandemic, Amazon and Alibaba came to the rescue. Even as the US-China trade war heats up, Alibaba’s Electronic World Trade Platform initiative is working with countries like Rwanda, Malaysia and Belgium to create a new infrastructure for global trade.
China’s platform economy leaders—Alibaba, Baidu and Tencent—have also been developing AI-driven solutions for COVID-19 diagnosis, vaccine development, contact tracing and risk assessment. Alibaba’s epidemic prediction solution model is trained on public data gathered from across China and predicts the trajectory of a coronavirus outbreak in a specific region with 98 per cent prediction accuracy. Meanwhile, the Alibaba Cloud hosts a virus genome sequencing application to diagnose new COVID-19 cases and has opened up its computing resources to research groups working on vaccine development around the world.
The pandemic has also highlighted the role of platforms as arbiters of discourse. Amazon took down books that it determined carried medical disinformation from its marketplace. Facebook, Twitter, Medium, Reddit and Pinterest have performed similar judge-jury-executioner roles, limiting search results for certain terms or entirely removing content deemed as misinformation. Platform regulation was on the rise over the second half of the 2010s, and 2020 was supposed to be the year when Big Government would seize power away from Big Tech. Instead, what we’re seeing is quite the opposite. The pandemic has accelerated the very grounds on which Big Tech was supposed to be regulated. Data access, privacy and usage laws are being revisited to counter the pandemic through contact tracing and other surveillance mechanisms.
As a final testament to the pervasiveness of the platform economy, platforms have started taking over governmental functions during the pandemic. This sounds dramatic but isn’t without precedent. During times of crisis, private firms often step in and take over activities which governments fail to perform. Platforms, as market mediators, are even more likely to take on such roles. Amazon’s directive to stop accepting non-essential products from third-party sellers who use its warehouses is an example of a private firm stepping in as a market regulator.
The pandemic has reinforced the importance of the platform economy. In the 2020s, we will see the platform economy gain further strength as the post-pandemic world uncovers new value pools for platforms to exploit.
Scene Two: The Post-Pandemic World
As we emerge into a post-pandemic world, we are already beginning to see the first signs of massive value migration.
More broadly, the post-pandemic world will see shifts in power across value chain actors. Platform scale and the ability to aggregate large and engaged user bases in order to attract other actors around your business will play a pivotal role. As an example, consider the rise in demand for online streaming services like Netflix and Amazon Prime Video during the lockdown. These two brands may not use an open ecosystem of producers as other platforms do, but they benefit from many of the same drivers of platform scale that we explore subsequently in this book.
One might argue that things will return to normal post-lockdown. But it’s quite likely that they won’t. This seemingly transient shift in demand-side behaviour is driving a shift in negotiation power in the value chain.
With the pandemic-induced closure of major theatre chains, studios are breaking what’s known in the industry as the ‘window’—the three-month period between when a movie hits the big screen and when it’s offered for rentals or streaming. This window protects theatre revenues.
But with the pandemic, studios have been launching their films directly on streaming channels, eroding the window. Universal, with Trolls World Tour, announced that it will make movies available at home on the same day as their global theatrical release. In response, AMC Studios barred Universal from ever launching a movie in their theatres. Meanwhile, with AMC Theatres struggling, Amazon was looking to acquire its assets as of June 2020, further driving the consolidation we see during such periods of value migration.
In India, Amazon secured rights to premiere Bollywood movies, originally scheduled for a theatrical release, directly on Prime Video. Pre-pandemic, Amazon was getting into online sales of movie tickets to gain bargaining power over movie theatres and possibly negotiate the release window. With the pandemic, this balance is likely to further tilt in Amazon’s favour.
The post-pandemic world will also see new revenue models emerge. China’s Huanxi Media partnered with Douyin, a streaming platform by ByteDance, to launch its movies and TV shows direct to streaming on a new business model involving a combination of a licensing deal and a share of the advertising revenues. As studios like Huanxi Media test the success of releases on streaming platforms, they will likely use that data to negotiate with theatres post-lockdown. Theatres won’t go away, but their bargaining power may decrease. The combination of demand migration and a shift in bargaining power will likely create a permanent shift in power towards Amazon and Netflix. The longer the pandemic-induced changes last, and the greater the number of hit films and shows released direct to streaming, the more likely such a shift becomes.
The pandemic has induced a similar shift in the food retail value chain. With many countries moving into lockdown during the pandemic, there’s been a significant shift towards e-commerce in food retail. This is further reinforced by the disruption of food supply chains, a supply-side effect. A combination of these demand-side and supply-side effects has driven value towards online grocery platforms that can best harness these shifts. Demand has been increasingly centralized, with a few large online grocery platforms that can use centralized demand data to better predict demand patterns, improve stocking of fulfilment centres and better inform their supply chains. Post-pandemic, supply chain inspections and quality control requirements are likely to increase, and this will again favour larger players.
This combination of demand- and supply-side effects will strengthen large grocery platforms.
In the post-pandemic world, we will increasingly see an aggregation of demand with a few large players. With centralized and aggregated demand as a control point, large platform firms will be able to effectively orchestrate the entire ecosystem to deliver value to consumers and will be best positioned to harness the value in these new value pools. As this book illustrates, leveraging technology—often commoditized—to orchestrate connected users towards new and efficient value-creating interactions holds the key to the business models of the future.
--Excerpts from chapter 'Platforms and Pandemics' of the book Platform Scale for a Post-Pandemic World by Sangeet Paul Choudary. Excerpted with permission from Penguin Random House India.
First Published:Feb 14, 2021 12:07 PM IST