Four key ideas for a sustainable platform economy in Europe

In the course of the Platform Alternatives project we had the unique opportunity to speak to various highly experienced academics, activists, trade unionists as well as entrepreneurs. We want to share four ideas on sustainability and fairness, which re-emerged throughout our conversations with them.

As platform companies are changing the way business is done in many European markets, they face a number of unanswered legal and ethical questions. It seems apparent that there is a need for regulation, not only to confront negative tendencies of platform businesses but also to ensure that they themselves foster a sustainable platform economy in Europe. To learn more about this, we hosted two roundtables this year in cooperation with the European Commission. Here we discussed the need for responsible platform governance with representatives of some of Europe’s most interesting platform businesses. In addition, a panel of experts shared their knowledge with us in a webinar, where we talked about possible solutions to the challenges that European platforms are currently facing. 

In the following we draw upon opinions and statements voiced by participants of these events to highlight four key ideas on sustainability and fairness, which re-emerged throughout our conversations with them.

1.  Platforms need to be transparent to enable fairness

Platforms offer products and services that are listed in rankings, which are invariably subject to curation and prioritisation – and as such these rankings are not neutral. So how can fairness be achieved and what exactly is fairness to begin with? If we distinguish between procedural and substantive fairness, it becomes clear that a central procedural element is to include all stakeholders in a platform’s business model, so that they are at least given the opportunity to voice concerns or to contribute. Substantive fairness is even more complicated. 

As an expert on competition law, Inge Graef (Associate Professor, Tilburg Law School, Tilburg University) has developed a typology of the various practices that can affect competition: in “Pure Self-Preferencing”, a vertically integrated platform gives its own services more favorable treatment – e.g., a preferred position in a ranking. In “Pure Secondary Line Preferencing”, a non-vertically integrated platform nevertheless prefers one or more companies. For this, the platform itself does not have to be active in the market, but still decides who tops the ranking. In “Hybrid Differentiation”, a platform differentiates between non-affiliated companies in order to give preference to its own services elsewhere. Graef referred to the tension between divergent interests where trade offs and policy choices will have to be made: “Platforms are in the driving seat and they are the ones that take these decisions, where I believe that it is now time for regulators, for policy makers to take back that control.” ^[1]

Transparency and the involvement of all stakeholders should be essential, but aims very high

Since state regulation cannot and does not ban any and all problematic practices, it’s essential that platforms are transparent about how they operate. Whether their practices are then deemed to be fair, is up to stakeholders to decide; transparency and the involvement of all stakeholders should be significant, but aims very high. How can the relationship between platforms and business users be shaped more fairly? Jonathan Reyes, Co-Founder and Vice President from the alternative rental platform FairBnB (FairBnB.coop), lays out how its competitive model operates and organically with local players: „One solution is for local actors to invest in cooperatives. In summary, there is social impact, public investors and local actors. We want to scale, but we have very specific conditions.” ^[2]

2. Any sustainable business model has to consider workers’ needs

To fulfill their responsibility towards partners and users on both sides of the market, platforms must be aware of their impact: they enable interactions and bring people together. Platforms should be designed to facilitate sales and ensure security, thus considering needs on both sides of the market. Workers ought to receive tangible rewards for their contribution to the success of the platforms. 

Vanessa Barth is an Executive Board Member at IG Metall, the largest trade union in Germany as well as the largest organised employee representative body worldwide. She believes that the flexibility platforms offer is at the core of their ambiguous image: “People love platforms, but in a better state, and they want a true partnership between platform and workers. They also love platforms because of their flexibility. Management involves a combination of human and technical factors; limited communication channels constitute a difficult factor. We need social security when it comes to pensions, because the current pay is not enough: we need better pay, transparency and minimum fees.”^[3]

Balance between sustainability and protection is key 

This also leads to the question of how algorithms influence and manage working conditions or labour relations on digital platforms. Max Uebe, who is Head of Unit Youth employment, Entrepreneurship, Microfinance Facility at European Commission, clarified that the Digital Services Act (DSA) will address digital labour platforms that will focus on the provision of one´s work. The goal here could be more effective redress mechanisms for workers to challenge decisions made by algorithms; also to enhance the transparency and predictability of automated decision-making. 

Uebe stressed striving to improve health and security in platform work: ​”Providing social protection is important. So we reflect on how to enhance the access to social protection of people working through platforms. And of course, the pandemic has made the lack of health insurance, unemployment support very visible.”^[4] In conclusion, balance between sustainability of the business model and protection of employees and market participants is key.

3. Venture capital funding, fragmentation and timing challenge the scaling of European platforms

European platforms face regulatory challenges in scaling across different countries and markets. Jovana Karanović, who is the founder of the non-profit initiative Reshaping Work as well as Assistant Professor at the Rotterdam School of Management, Erasmus University, draws comparisons to leading platforms in Silicon Valley, which have access to a tremendous amount of venture capital whereas European providers hold significantly fewer resources: ”Because platforms are highly dependent on network effects and use different strategies like price distribution mechanisms to subsidise part of the market, they need huge amounts of venture capital. If you’re a small platform or startup trying to thrive in a European market, you really need a funding.” ^[5]

Daniel Enke, Head of Public Affairs (Zalando.de) explained the crucial role of timing in Zalando’s expansion in Europe; the company was one of the first to receive funding in 2008 at a time when e-commerce in the fashion industry was not as advanced as it is today: “When we expand into other markets, we pay attention to the infrastructure, the competitive situation, and of course the language. These factors determine the most important interactions with our customers. We are not a purely digital company: we are a big logistics company – apart from being a fashion retailer and a fashion platform.”^[6] 

Ionut Lacusta, Head of Public Affairs of the fast growing spanish delivery platform Glovo (Glovoapp.com), provided deeper insights on the difficulty of exploring new markets: “Platforms are successful scale-ups, even more so than successful start-ups. But for those who have to factor in the expansion to multiple jurisdictions – costs, time and resources required to do so each time – the move from a start-up to a scale-up format is difficult.” Lacusta further linked the discussion of how ownership is treated in a start-up and in a scale-up company to a non-functioning employee share ownership system in most EU countries. He argued that profitability matters when salary is the only compensation: “That’s not how you’re going to attract the talents you need to stay long and achieve shared growth with – that’s still being worked on in many EU countries.”^[7] 

4. Data governance needs to be user-centric 

In order to address the issue of data protection and privacy, tensions in competition must be taken into account. In effect, a balance between data protection, innovation and competition must be established. The business models of digital platforms are often based on the usage of data. Accordingly, sustainable ways of data sharing are needed. 

What has increased is the citizens´ desire to be able to distinguish between ’fair’ and ’unfair’, explained Tiina Härkönen (Leading Specialist, Fair Data Economy at Sitra). In the long run, European platform companies could benefit from taking a clear stand on data protection – also in the B2B context, Härkönen said. Simply put, businesses need the volume and variety of data that European ecosystems generate. Individual platform companies may not have all the tools at their disposal, which means they need to pool their resources with other organisations.

Consistent action and doing more creates trust 

Viivi Lähteenoja (Data Policy Researcher, MyData Global) emphasised a trust-based approach: “Philosophically, there are many metaphors for data: data means power – especially in its use. Data governance must be user-centric! Going forward, it’s important to build upon corporate culture from the start: if a company wants to be trustworthy, it should commit to the value of transparency and accountability. Consistency of action builds trust.”^[8]

In the end, a successful business depends on trust, which Mariane ter Veen (Director, Lead Data Sharing) underlined as she spoke of the need to raise awareness of data sovereignty and its importance as well as implications for platform companies: “Specifically the digital sustainability aspect; the idea that we should focus more on addressing the unintended negative consequences of the explosion of data transactions. The cornerstone of digital sustainability is developing a digital CSR policy that protects the role of those who generate the data, be they people or organisations.” ^[9]

The more responsible platforms look for ways to leverage their role in driving the market, the more sustainable their own impact and that of their users can ultimately become in the future. 

This post is part of the European Platform Alternatives issue in focus

Footnotes

^[1] Roundtable: Treatment of users and complementors. 21.04.2021. Humboldt Institute for Internet and Society, Online, Co-Organised by: Oxford Internet Institute & European Commission.

^[2] ibid.

^[3] Roundtable: Treatment of users and complementors. 21.04.2021. Humboldt Institute for Internet and Society, Online, Co-Organised by: Oxford Internet Institute & European Commission.

^[4] ibid.

^[5] Platform Entrepreneurship in Europe: Which Business Models are Viable and Sustainable? 03.06.2020. Online, Co-Organised by: Oxford Internet Institute.

^[6] ibid.

^[7] ibid.

^[8] Roundtable: Data Governance in Digital Platform Economy. From 23.06.2021 to 23.06.2021. Humboldt Institute for Internet and Society, Online, Co-Organised by: Oxford Internet Institute & European Commission.

^[9] ibid.