What Happens When Platforms and Network Industries Collide?

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Uberisation
Network industry
New technology
New economy
Platform

The digital disruption of network industries may undermine investment in the very infrastructure those industries are founded on.

In recent years, platforms such as Amazon, Google, and Facebook, have disrupted a range of markets, from retail to banking. These platforms – digital entities that facilitate and mediate interaction between participants in a value ecosystem – use new technologies to meet unserved needs, create consumer value, and offer innovative services. Now, though, as academics Juan Montero and Matthias Finger illustrate in their paper Platformed! Network Industries and the New Digital Paradigm, platforms are encroaching on network industries, such as transport, communications and energy, typified by heavy investment in infrastructure and often vital to the functioning of society.

Networked industries tend to share features that make them open to digital disruption. Fragmentation due to liberalization and deregulation, for example, often in markets dominated by monopolies, with the unbundling and separation of services, or due to technological innovation that enables users to become producer-consumers.

This fragmentation allows online platforms to act as coordinators, reconfiguring the value ecosystem, often exploiting regulatory environments that place incumbent firms at a disadvantage. Initially the platforms become substitutes for traditional services using alternative infrastructure in addition to, or instead of, existing network industry infrastructure.

But, given time, platforms commoditize markets relegating incumbent service providers to participants in a value ecosystem where the platform mediates relationships, transactions and value creation. Incumbent telecom carriers become facilitators for platforms offering Over The Top services. Mobility-as-a-Service and distributed energy production, with home generation and short-term storage technologies, signal that travel and energy markets are heading in a similar direction.

Traditional network operators are fighting a rearguard action, much of it around regulation. Calls to extend existing regulations to cover the online platforms envisage the creation of a more level playing field. While platforms argue for full, open and non-discriminatory access to the existing network infrastructure, incumbents assert the right to control and manage their assets and charge as they see fit.

Such skirmishes may seem a natural phenomenon in a competitive economy. But much is at stake. Online platforms may create efficiency and flexibility for consumers, but they also disrupt traditional funding mechanisms that enable vital infrastructure investment. As the authors note, if stakeholders are unable to balance the interests of online platforms and traditional network service providers, the infrastructure underpinning these network markets may not be sustainable. Ultimately, it may be the tax paying consumer that loses out.

Online platforms may create efficiency and flexibility for consumers, but they also disrupt traditional funding mechanisms that enable vital infrastructure investment.

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