Google, Facebook, Amazon. The Great Platform Wars
October 19, 2017
This article is an excerpt from Platform Capitalism (Polity Press) © 2017 Nick Srnicek. Published with the kind permission of the Author and Polity Press.
If platforms are the emerging business model for the digital economy, how do they appear when set in the longer history of capitalism? In particular, up to this point we have largely left out one of the fundamental drivers of capitalism: intracapitalist competition. The period since the 1970s, when the global economy has been saddled by overcapacity and overproduction in the manufacturing sector, is known as the long downturn. As companies were unwilling and unable to destroy their fixed capital or to invest in new lines, international competition has steadily continued and, alongside it, the crisis of overcapacity in manufacturing. Unable to generate growth in this situation, in the 1990s the great platform wars United States began trying to stimulate the economy through an asset-price Keynesianism that operated by inducing low interest rates in order to generate higher asset prices and a wealth effect that would spark broader economic growth. This led to the dot-com boom of the 1990s and to the housing bubble of the early years of the twentyfirst century.
Today, as we saw in the previous chapter, asset-price Keynesianism continues apace and is one of the fundamental drivers behind the current mania for tech start-ups. Yet, behind the shiny new technology and slick façade of app interfaces, what broader consequences do these new firms hold for capitalism? In this chapter we will step back to look at the tendencies unleashed by these new firms into the broader economic environment of the long downturn. Some argue that capitalism renews itself through the creation and adoption of new technological complexes: steam and railways, steel and heavy engineering, automobiles and petrochemicals – and now information and communications technologies. Are we witnessing the adoption of a new infrastructure that might revive capitalism’s moribund growth? Will competition survive in the digital era, or are we headed for a new monopoly capitalism?
With network effects, a tendency towards monopolisation is built into the DNA of platforms: the more numerous the users who interact on a platform, the more valuable the entire platform becomes for each one of them. Network effects, moreover, tend to mean that early advantages become solidified as permanent positions of industry leadership. Platforms also have a unique ability to link together and consolidate multiple network effects. Uber, for instance, benefits from the network effects of more and more drivers as well as from the network effects of more and more riders. Leading platforms tend consciously to perpetuate themselves in other ways as well. Advantages in data collection mean that the more activities a firm has access to, the more data it can extract and the more value it can generate from those data, and therefore the more activities it can gain access to. Equally, access to a multitude of data from different areas of our life makes prediction more useful, and this stimulates the centralisation of data within one platform. We give Google access to our email, our calendars, our video histories, our search histories, our locations – and, with each aspect provided to Google, we get better predictive services as a result. Likewise, platforms aim to facilitate complementary products: useful software built for Android leads more users to use Android, which leads more developers to develop for Android, and so on, in a virtuous circle. Platforms also seek to build up ecosystems of goods and services that close off competitors: apps that only work with Android, services that require Facebook logins. All these dynamics turn platforms into monopolies with centralised control over increasingly vast numbers of users and the data they generate.
We can get a sense of how significant these monopolies already are by looking at how they consolidate ad revenue: in 2016 Facebook, Google, and Alibaba alone will take half of the world’s digital advertising. In the United States, Facebook and Google receive 76 per cent of online advertising revenue and are taking 85 per cent of every new advertising dollar. Yet it is also true that capitalism develops not only greater means for monopoly but also greater means for competition. The emergence of the corporation form, the rise of large financial institutions, and the monetary resources behind states all point to its capacity to initiate new lines of industry and to topple existing monopolies. Equally importantly, digital platforms tend to arise in industries that are subject to disruption by new competitors. Monopolies, in this view, should only ever be temporary. The challenge today, however, is that capital investment is not sufficient to overturn monopolies; access to data, network effects, and path dependency place even higher hurdles in the way of overcoming a monopoly like Google. This does not mean the end of competition or of the struggle for market power, but it means a change in the form of competition. In particular, this is a shift away from competition over prices (e.g. many services are offered for free). Here we come to an essential point. Unlike in manufacturing, in platforms competitiveness is not judged solely by the criterion of a maximal difference between costs and prices; data collection and analysis also contribute to how competitiveness is judged and ranked. This means that, if these platforms wish to remain competitive, they must intensify their extraction, analysis, and control of data – and they must invest in the fixed capital to do so. And while their genetic drive is towards monopolisation, at present they are faced with an increasingly competitive environment comprised of other great platforms.