Internet platforms have (at least) two quite distinct sets of customers. Google, Facebook etc. need to please both advertisers and readers. Uber needs to please both drivers and passengers. Hotel booking sites – and Airbnb - need to please both providers and guests. Spotify needs to please both musicians and their audience.
Economists say that these are ‘two sided markets’ because they can choose whether to seek income from the content provider or from the public. In effect, one side usually subsidises the other.
- Google, Facebook etc. charge advertisers (but also – in effect – sell users’ data).
- Uber charges passengers – but takes a cut.
- Hotel booking sites charge the hotels.
- Spotify charges listeners – and takes a cut.
These platforms can cause a number of problems which might need a regulatory response.
1. It doesn’t always happen, but there is a strong tendency for the ‘winner to take all’ and create a monopoly. Once there is an obvious ‘go to’ and free supplier, it can be very hard for competitors to force their way into the market. And the big guys will generally seek to acquire any lively and threatening start-ups – and then either absorb or kill their technology (unless the competition authorities take firm action to defend them).
(The classic example was Facebook’s acquisition of Instagram for $1 billion. Also, as a frequent user of Booking.com, I was surprised and concerned to learn that its parent company, Priceline, also had an online travel business in America as well as owning Kayak, OpenTable, Rentalcars.com and others – and insisted that customers should allow their data to be shared around the whole group.)
2. Their strengths derive from the power of their algorithms – which are commercially highly sensitive and sometimes rather creepy – and their control of ‘big data’ – creepier still.
- Social media is accused of creating all sorts of harms
- Airbnb don’t worry about building/fire safety.
- Uber doesn’t vet its drivers as well as do licensed taxi companies.
But … there are plenty of reasons to be careful before reaching for regulatory weapons.
- There are often huge consumer benefits
- It can be inappropriate to impose burdensome regulation on a whole sector when only one or two companies are the problem.
- It can be hard to define a ‘digital’ company.
Background Reading
Steve Unger has written an excellent policy brief for the Bennett Institute:- Regulation of Online Platforms - What can we learn from 150 years of telecoms regulation?