On Money: Platform Companies Are Becoming More Powerful — but What Exactly Do They Want?

2017-03-26 14:01:03

 

On Money: Platform Companies Are Becoming More Powerful — but What Exactly Do They Want?

During a February ride in San Francisco, Travis Kalanick, the chief executive of Uber, was recorded arguing with and eventually berating an Uber driver from the back seat of his car. The driver, who had been working with the company since 2011, accused Kalanick of undercutting drivers of high-end cars like his, plunging him into bankruptcy. Kalanick responded with a lecture about the basic economic logic of his company: Soon, the supply of luxury cars on the app would be reduced, causing demand to increase. Besides, he went on, if the company hadn’t added a lower-priced tier, it would have been beaten by competitors. This did not satisfy the driver, which seemed to enrage Kalanick, who erupted into a moralizing tirade. “Some people don’t like to take responsibility for their own [expletive],” he said, before leaving the car.

The scene in the clip, obtained and published by Bloomberg, was striking. This wasn’t a manufacturing magnate visiting the factory floor or a retail executive paying a surprise visit to a struggling location. Indeed, Kalanick’s ambiguous relationship to the driver was, in a sense, the source of the disagreement between them — a dispute that sailed straight past self-examination into outright hostility.

Uber has spent the beginning of 2017 mired in controversy. There were allegations of sexual harassment and intellectual-property theft; The Times uncovered a brazen effort to thwart local authorities. These scandals drew scrutiny to Uber’s corporate culture. But the recording of Kalanick shed light on something else: the model around which the company is built.

Uber, like so many other successful tech companies in 2017, is a “platform business,” one built around matchmaking between vendors and customers. If successful, a platform creates its own marketplace; if extremely successful, it ends up controlling something closer to an entire economy. This is intuitive in a case like eBay, which connects buyers and sellers. Airbnb, too, resembles an age-old form of commerce, connecting property owners with short-term lodgers. TaskRabbit and Fiverr connect contractors with people looking to hire them. Some of the largest platforms are less obviously transactional: Facebook and Google connect advertisers with users, users with one another, software developers with users. But while the transactions that happen on their platforms largely take a different form — taps, shares, ads served and scrolled past — the principles are essentially the same, as are the benefits. These businesses are asset- and employee-light, low on liability and high on upside. They aspire to monopoly, often unapologetically, and have been instrumental in rehabilitating the concept. (The logic is seductive and often self-evident: Facebook is more useful if everyone is on it, therefore everyone should be on Facebook.)

Predictably, platforms have long been intoxicating to investors. They’ve also been the subject of rapturous popular business writing. In their 2016 book “Matchmakers: The New Economics of Multisided Platforms,” the economists David S. Evans and Richard Schmalensee cast the subject in revolutionary terms, calling for a “new economics” to account for businesses that are “transforming economies” around the world, “making life easier and better for billions of people” — the sort of broad and ideological claim previously reserved by economists for capitalism as a whole.

Amid the cheerleading, a comprehensive criticism of the platform model has been slow to emerge. Nick Srnicek’s “Platform Capitalism,” published in December, tries to situate the rise of platforms in a broader history of capitalism and to project those lessons forward. Srnicek recasts a few features of platform businesses as potentially problematic. Among them is their tendency to metastasize from transaction enablers to, with sufficient success, participation gatekeepers. A food-delivery app like Seamless begins its life with promises of liberation, connecting customers with nearby restaurants, taking care of payments and eliminating phone calls. But in the cities where it has been most successful, its customer base becomes too big to ignore, even for restaurants that struggle to afford its steep commissions. In other industries, the stakes are much higher. An insurgent Airbnb feels as if it’s enabling new types of transactions between previously unconnected people. A dominant Airbnb might come to resemble something between a superintendent and a landlord for millions, not to mention a force reshaping cities in its image.

Platform companies have themselves hired economists to help conceptualize and manage the economies they’ve created. Google, Airbnb, Uber and Amazon have aggressively recruited professors and researchers to help understand what, exactly, they have on their hands, and how to expand, regulate and exploit it. Within a rigidly structured platform like Uber, for which the company sets prices, the economic problems are somewhat akin to those of a command economy: How low can we push the cost of a ride before drivers stop participating? (Quite low, for now.) How do we deal with sudden increases in demand? (Surge pricing, controversially.) How might new drivers be both induced to join the platform and more deeply compelled to stay? (Through the introduction of vehicle-financing programs and short-term loan services.)

Platforms are, in a sense, capitalism distilled to its essence. They are proudly experimental and maximally consequential, prone to creating externalities and especially disinclined to address or even acknowledge what happens beyond their rising walls. And accordingly, platforms are the underlying trend that ties together popular narratives about technology and the economy in general. Platforms provide the substructure for the “gig economy” and the “sharing economy”; they’re the economic engine of social media; they’re the architecture of the “attention economy” and the inspiration for claims about the “end of ownership.”

But the tensions that platforms like Uber create with their customers, their workers and the world that surrounds them will soon become harder to ignore as these companies foment economic and social change, the consequences of which will increasingly be thrust into spectacular display. The Kalanick video was a P.R. nightmare not just for Uber but also for the platform economy in general, posing grand questions about the world it promises, or threatens, to create. The zeal for platforms, combined with the technology industry’s internalization of their merits and inevitability, will push them into areas where the tensions they create become starker and the ideologies they carry become more apparent.

Nowhere is that ideological dimension more clear than in the Kalanick video from February. Driver and founder sat inches apart, alienated from each other by the system over which one presides and within which the other toils: the founder explaining to the driver how the platform works and must work; the driver appealing to this person for better pay. It resembles nothing more than one man remarking on the rain while the other thinks, “Don’t you control the weather?” Platforms seek total control even as they abdicate responsibility. In other words, they’re perfect.

For now, the tensions that platforms can breed have been obscured — or at least ignored — in large part because platformized labor has arrived first in sectors where employment was already widely precarious and contract-based, like taxi driving. As the model expands, these tensions may become more visible as workers with more political and social capital are subjected to them. The recent history of platforms, however, has been defined by the failure of all but a few smart or lucky people to imagine just how successful and powerful they can be.

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