How Data Informs Business

Defining digital platforms

Digital platforms might be defined as "multisided marketplaces with business models that enable producers and users to create value together by interacting with each other", and by facilitating matching, searching, exchanging, transactions, and so on. Marketplaces rely on information to adjust prices and impose rational order, but information is frequently uneven and incomplete. Digital platforms offer advantages over traditional marketplaces through scale and network effects that increase the information flow and interaction between participants. Participants derive benefits from communications networks that increase as others join the system. For marketplaces that bring together suppliers (or advertisers) and users (or information consumers), economies of scale become even more important. Multisided platforms benefit from positive network externalities, as the utility of each side increases as participants increase on the other side. For example, the utility of a car-sharing platform for each side increases with the increase of drivers and riders. The scale effects are not uniformly positive, however, and policy makers must recognize risks such as dominance and anticompetitive behavior.

Digital platform enablers

Digital platforms typically combine physical (and virtual) and behavioral (and market) enablers. Physical enablers (figure 5.1) include digital infrastructure (fixed and mobile broadband networks), smartphones, payment tools, geolocation, cloud-based services, security, and ancillary enablers (such as distribution, logistics, and intermediary goods). Behavioral or market enablers (figure 5.2) nudge consumers toward buying goods or accessing services in a peer-to-peer economy in which platforms increasingly mediate interactions, typically coordinated by peer-based trust relationships. This development is sometimes called collaborative consumption.

Figure 5.1 Physical and virtual enablers

Figure 5.2 Market and behavioral enablers

Platform enablers have important implications for economic development. Emerging and transitioning economies often lack pervasive broadband internet infrastructure, and present wide disparities in internet access among population groups (these differences relate to, among other things, urban versus rural, gender, age, education, and income differences). Equally important divides affect access to devices such as smartphones and laptops. Overcoming the digital divide is thus essential to developing digital platforms in emerging markets. In the Middle East and North Africa region, the ride-hailing platform Careem emphasizes the social value proposition of not only creating jobs, but fostering social value by allowing drivers to become micro-entrepreneurs, including by equipping them with smartphones.

The development of the physical and virtual enablers of digital platforms in developing countries may require dedicated policies, technical assistance, and investment. Digital infrastructure may also require a combination of telecommunication market liberalization, regulatory reform, and better targeting of subsidies to extend the commercial viability of broadband infrastructure or public-private partnerships. Increasingly, as shown in chapter 3, these physical enablers are software based, such as artificial intelligence, the Internet of Things (IoT), machine learning, and autonomous vehicles. They may also require harmonized data protection and privacy standards to facilitate the development of cross- border operations. The development of technology enablers has been crucially important, for instance, for Alibaba's ecosystem development to bring together the trading platform, payment system, and logistics network that forms the basis for its e-commerce business platform (see figure 5.3).

Figure 5.3 Geographical concentration of digital multinational enterprises with revenue in excess of US$1 billion, by region, 2016

The study of the market and behavioral enablers of digital platforms constitutes a research agenda by itself. In many cases, participant behavior and market development in emerging markets closely mirror that in high-income markets. For example, digital platforms to match labor supply and demand are popular in emerging markets: the Philippines, the Russian Federation, and Ukraine are among the top 10 countries providing skilled labor on Upworks' digital platform. Alibaba is a serious global competitor for eBay and Amazon, and Alipay's transactions are a multiple of those of Paypal.

But ability to scale up and reach critical mass is limited to a relatively few emerging markets. Plus, platforms often exclude many economic actors, such as consumers outside the reach of mobile broadband coverage or without smartphones and SMEs without access to technology. SME owners can be encouraged to participate in platforms through tax breaks or subsidies or be given training or access to technology. Incentives to global platforms to localize businesses by partnering with local businesses could also be an option, as shown, for example, by the Uber-Yandex agreement in Russia.