Think at London Business School
How should leaders adapt to the new world of business ecosystems? For a start, they need to realise that their customers now call the shots
By Michael G Jacobides
We live in a world dominated by technology platforms and their associated business ecosystems. Google, Apple, Facebook and Amazon have all fared well in recent months; even a blockbuster televised grilling before the US Congress couldn’t dent their share prices.
In a post-COVID world, where data, AI and geolocation will be key to economic recovery, the dominance of a few big players further sharpens the dilemma facing regulators. If we left it to the market, where would that take us?
Fresh regulation isn’t just a question of clipping the wings of Big Tech but of allowing it to find new ways for technology to provide society with important solutions including ways to tackle COVID-19. Amazon can be a true force in healthcare; like Google’s Verily, its goal is to revolutionise the sector. Facebook is already active in preventive healthcare, while firms such as Phillips are advocating a new template for sharing healthcare information.
The puzzle is between convenience and competition (let alone privacy).
By making us even more dependent on virtual connections, COVID-19 is hastening this shift; Facebook just ventured into e-commerce to challenge Amazon, and Apple’s new growth engine is services, from TV and News to Apple Card. As Big Tech would argue, this just delivers to consumers what they want. Yet where does customer convenience end, and competitive dominance begin? Beyond privacy, how does data relate to competition?
To tackle dominance, we’ll need to revisit the rules of competition. In banking, a sector plagued by inefficient firms, the EU has forced the adoption of 'open banking standards' called PSD2 to enhance competition. Should these expand onto other sectors, including social media? If so, how far should we go?
“The dominance of a few big players further sharpens the dilemma facing regulators”
To find a solution for society we need to take a step back, understand the business models of the platforms that aspire to run an ever increasing part of our lives, and then revisit regulation from the bottom up. The economics of digital businesses, with easy scalability, lock-ins and ‘winner-takes-most’ dynamics, create problems of dominance unlike the ones we’ve been used to, as recent government-sponsored reports from the UK and the EU and academic work in the US confirmed.
Consider Big Tech M&A. Microsoft paid $8.5bn (£6.5bn) for Skype and $26bn for LinkedIn, while Facebook spent $22bn on WhatsApp. These massive investments helped acquirers cement their hold over their respective ecosystems and snuff out the threat from a potentially competing platform – a fact that came to haunt Google and Apple in the recent Congressional hearings of their CEOs.
The problem is that today’s antitrust playbook is incompatible with the new rules of digital platforms and ecosystems. For instance, out of Alphabet’s tally of 150+ acquisitions over the last decade, EU and US competition authorities opened cases for just six – and ultimately took action on none at all. Is Google really so pro-competition? Or are we working with outdated ideas of what competition and power really are?
This is by no means an idle question. Right now, Google, Apple, and Facebook are sitting on combined cash reserves of $570bn, or three times the GDP of my native Greece. They can buy anything they want, given the looming contraction. Should we really allow this? Or should we try to foster more meaningful and productive competition between ecosystems?
Recently, LBS, UCL, and the WEF co-organised a workshop on the regulation of platforms and ecosystems, involving several heads of European competition authorities and Big Tech leaders. The event highlighted a systemic unease and growing calls for a rethink of intra-platform competition and how all-powerful orchestrators manage members of their ecosystems. The current stock-market valuations of Big Tech suggest their power will grow, raising questions about our entire regulatory apparatus. Whether or not we intervene, our choices today may set the stage for the competitive landscape for decades to come.
“They can buy anything they want. Should we really allow this? ”
We have to take trade-offs seriously and move beyond existing antitrust tools. If we do turn our backs on Big Tech, how can we justify neglecting its prodigious, potentially life-saving power, or justify the frictional costs? But if we embrace it, how can we ensure a level playing field? The point of regulation is not to protect outdated incumbents, but to facilitate dynamism while mitigating the real risk of excessively powerful firms. To rise to the challenge, regulators and economists have to rethink their toolkit, and those of us with an interest in strategy, innovation, and digital business models have to focus on societal issues.
While the spotlight has been on the US, given the Big Tech CEO depositions to Congress, this was more about shaping public opinion and venting frustrations than immediate action. Looking at the legislative and regulatory agenda, the EU is poised to play a key role here – partly as a result of historical accident, and partly due to its political economy.
Unencumbered by home-grown Big Tech players, the EU is forging ahead with new regulations on the platform economy. Ongoing consultations about the forthcoming Data Act and the Data Services Act, the implementation of the EU’s “business to platform” guidelines, the new regulatory tool for platforms, and its current investigation into the role of dominant platform orchestrators, could all make a lasting mark. Academia should take its cue from the EU and explore the same topics. (The UK has adopted a progressive stance but standing alone will struggle to make a global impression.)
Every technological choice we make has profound ramifications for strategy, competition, social welfare, and the individual. If we want solutions that will meet all those needs, both during the crisis and long afterwards, we need a new way of thinking about platform and ecosystem players that truly works for everyone.
Michael G Jacobides holds the Sir Donald Gordon Chair of Entrepreneurship and Innovation at London Business School, where he is Professor of Strategy.