Can European platform capitalism be sustainable?

Which business models of European platforms are viable and sustainable? That was the question asked and addressed in a virtual event last week. Senior Researcher Nicolas Friederici shares his takeaways.

To date, European platforms have played second fiddle in the digital economy. American platforms, especially the big five technology corporations, have become dominant and unavoidable digital infrastructures for everyone using the internet. Meanwhile, even the most successful European platforms have remained much smaller and confined to more specific aspects of our digital lives, say, Spotify as a music streaming service.

We recently hosted a webinar to explore why this is, and what the future of European platform entrepreneurship may look like. We wanted to find out which strategies European platforms implement to compete in the globalized digital economy, but also whether European organizations may align themselves more closely with European values and institutions.

The virtual event was the first milestone of the Platform Alternatives project, a two-year study of European platform capitalism supported by the Hans Böckler Foundation. Subin Park of the Oxford Internet Institute and I presented early research findings, including a report on the unevenness of platformization across Europe. We then left the stage to European platform entrepreneurs to share their views and insights. Our panel was moderated by Asal Dardan, who was joined by Thorsten Seeger of the pan-European fintech October, Ionut Lacusta of the globally operating delivery platform Glovo, Jovana Karanović of Reshaping Work, the leading European knowledge forum on the platform economy, and Daniel Enke of fashion e-commerce provider Zalando.

Both the presentations and the panel discussion were packed with insight, so I’d definitely recommend watching the whole event. Here, I’ll share three learnings that stuck with me, all highlighting that European platforms differ greatly from the big five American ones.

Venture Capital

Much of the discussion centered on venture capital as the most pronounced differentiator between European and American platforms. Jovana Karanović pointed out that platforms, more than other enterprises, depend on pre-revenue investments to scale fast and capture network effects. European platforms may be less attractive for venture capitalists, especially platform coops given their collective ownership. Thorsten Seeger and Daniel Enke confirmed that the US is culturally more accepting of business models oriented towards long-term market domination, while European platforms may be criticized if they burn cash without showing profitability in the short-term.

Ionut Lacusta linked venture capital, market fragmentation, and scalability. All else being equal, global capital may indeed prefer a platform startup targeting the US where the home market is homogenous and scaling is faster. Therefore, the key for European platforms, in his view, is to turn hyper-localization into an advantage. For Glovo, the experience of adapting its model to a series of municipal markets within the EU later made it easier to expand to varied markets outside of the EU. Thorsten Seeger confirmed that, once a platform has set up in a few markets, further expansion tends to get easier. For Zalando, sufficient venture capital at an early stage was essential to cover and conquer markets and set standards. Somewhat surprisingly, the overall learning here is very similar to what I found to be the case for African platforms: head-on competition with American platforms is futile given their much deeper pockets and much longer runway, while differentiation can be promising and scalable where regulation and offline market adaptations create protections from transnational platform giants.

Purpose and Trust

The second key idea of the debate was that European platforms may turn the currency of trust into a competitive advantage. Ionut Lacusta reminded the audience of Margrethe Vestager’s vision that the US may have capital, China may have data, but Europe has purpose. He argued that the GDPR is a good reference where an initially “expensive pill to swallow” for businesses ended up as a global regulatory gold standard. Daniel Enke of Zalando confirmed that, so far, American and Chinese e-commerce competitors struggled with establishing brand recognition in fashion, leaving an opening for Zalando to position itself as the trusted European provider.

Thorsten Seeger emphasized that the importance of trust is even more pronounced in the financial sector. However, he also highlighted that very different trust dynamics are at play for the two sides of October’s platform business model (large investors and SMEs looking for finance), and that his platform’s power to establish trust is more limited than Zalando’s. Similarly, Ionut Lacusta outlined how Glovo is orchestrating three sides of a market (consumers, couriers, and restaurants or other shops), each with their own complex and localized trust conditions. In response, Jovana Karanović advanced the bold idea of an EU authority that could enforce and certify platform standards, especially in the realm of algorithmic transparency and fairness towards gig workers. Such an agency could help bolster trust for European platforms, especially small entrants that may have superior or more ethical products but do not yet benefit from platform power or brand recognition.

Ripple Effects

The third learning that stood out for me was European platforms’ interdependence with the traditional economy and national regulatory regimes. I noticed this as an overarching theme in the panelists’ answers to Asal’s question about effects of the Corona crisis. They reported rather varied effects. Zalando is likely to be negatively affected by consumers’ reduced discretionary spending in absolute terms but relatively less so than brick-and-mortar businesses. October is facing a steep decline in demand for financing from SMEs because many of them will default while German regulations require emergency loans to be distributed through banks and not fintechs. Glovo sees itself as a “seismograph for the economy,” which is contracting in most places. Yet, Glovo’s last-mile delivery has also become an essential business in some cities, and it has been treated as such by municipal policymakers. Finally, Jovana Karanović pointed out how gig workers in several European countries may fall through the cracks of social protection completely, despite them representing a kind of frontline during lockdowns.

As different as these consequences are, they all indicate that the fate of European platform organizations and their stakeholders is closely interlinked with that of the overall European economy, especially during a downturn as the one brought about by the Coronavirus. This is a stark difference to the American tech giants. They offer digital infrastructure which, if anything, we have grown more dependent on during the crisis. Accordingly, big tech has already regained and surpassed its pre-crisis market valuations.

Towards Sustainable Platform Capitalism?

What’s next? In the empirical part of our project, we will dig deeper into the above-mentioned unique features of European platforms. We will focus on the link between what is good business and what is the right thing to do for platforms. Zalando’s Daniel Enke emphasized that the company had “learned important lessons, sometimes painful ones” with regard to protections and conditions for its blue-collar workforce in warehouses. He also spoke of plans to set ethical standards for the entire fashion supply chain. Ionut Lacusta argued that Glovo’s platform can be beneficial for “the entire economic ecosystem” in cities across Europe, and that the company “just decided to never abuse data” from users or couriers.

These claims encapsulate the proposition that our project will examine over the next 18 months: that European platforms–both as a matter of market necessity and of principle–may bring about a more sustainable version of platform capitalism.