What Happens When Tech Companies Compete on Their Own Platforms?
In the wake of many scandals involving some tech firms, more and more people and businesses are seeing the size of these companies as a fundamental problem. Most tech giants own a platform – where consumers and sellers transact – while at the same time participating on their own platforms.
That is why some third parties see it as a conflict of interest that stifle innovation and undermine competition. This group finds it hard to think about success in a space that is dominated by a few giants.
Platform Companies Have Become More Powerful
Most platforms businesses are built around matchmaking between customers and vendors. If successful, these companies create their own marketplaces, which may end up controlling something closer to an entire economy. Sadly, this can create a conflict of interest, thus limiting the competition. What is even more worrying is that some of these businesses aspire to be monopolies and always ready to rehabilitate the concept.
In fact, tech companies like Uber, Airbnb, Amazon, and Google have aggressively hired researchers and professors. These professionals will help them not only to understand what they have on their hands, but also how to grow, regulate, and exploit it. So, most of them are proudly experimental. Regrettably, some of their tests can create tensions with their stakeholders.
The Main Concern
One common complaint from third parties about platform businesses is that the platform owners know what works. So, when these same tech companies enter the most profitable areas themselves, they are likely to decimate other players, mainly small businesses.
Amazon, for instance, may copy the goods listed on Amazon Marketplace, and then sell its own branded versions. Likewise, Google can snuff out small competitors, such as Yelp and TripAdvisor, by demoting their content on its search algorithms in favor of its own ratings.
Last year, EU regulators penalized Google for breaking antitrust laws with a record-breaking $5 billion fine. According to the regulators, Google has been bundling search and Chrome apps in the Android operating system. While the company refuted the claims, the decision by EU regulators only helps to stimulate the ongoing debate about the big tech breakup.
Proposals to Restore Marketplace Competition
Recently, Senator and Democratic presidential candidate Elizabeth Warren proposed a policy change to break up big tech, including Facebook, Google, Amazon, and Apple. In her proposal, she believes unregulated tech companies limit competition and stifle innovation. Her proposal is meant to prohibit any tech company with $25 billion or more in annual income from taking part in its platform.
So far, there is no consensus regarding the impact of tech companies participating in their platforms. Some believe that platform-own entry improves quality. Those advocating for it, believe that the approach can create a positive spillover effect to third-parties, which can increase their demand. However, the impact of entry is not always positive.
Indeed, this issue is more complicated than the different analyses that have been used to support or oppose platform-own entry. But what we know for sure is that tech platforms have become more powerful and controlling. So, let’s analyze their impact in two parts.
Part #1: Does It Add Value When a Platform Offers Its Own Products?
You may be asking yourself why Apple develops its own apps instead of depending on third-party developers. Or why does Google promote its own restaurant reviews? What is even more intriguing is that companies like Amazon sell some items on its Marketplace when some third-party sellers already offer them.
The main reason tech companies offer products on their platforms is to compliment the platform, making it more valuable. Without an existing base of platform users, only a few third-party providers would be interested in developing products for that platform. Consequently, no consumer would adopt the platform if there are no complimentary applications.
Several studies have suggested that tech firms choose to participate on their platforms because they want to improve quality. For instance, Google may want to introduce its flagship app if users raise privacy concerns about third-party apps. Likewise, Apple may think it can do a better job at cleaning your macOS or iOS device.
Speaking of cleaning your devices, you may benefit more from these tech platforms if you know how to speed up computers or smartphones. Fortunately, you don’t have to do anything, as there are several Android and Mac cleaning tools. Be sure to check out on Software Tested to learn about Mac and Windows error solutions, including PC repair tips and tricks.
In addition to the above, an e-commerce platform may list its products in some categories to manage counterfeit products. In fact, the main reason why Chinese tech giant JD offered its own products was that the company wanted to minimize counterfeiting.
Part #2: What Are the Negative Consequences of Platform-Owner Entry?
Unfortunately, platform entry may also send a negative signal to third-party providers. It may deter some of them from providing more complementary products on the platform. And this might force the platform owners to go the extra mile to attract potential vendors. While platform entry may create positive spillover effects to complementors, it can also decrease the demand for third-party products.
Let’s not even go too far. Google’s entry into photography apps and Facebook’s integration of Instagram made more users aware of the photo apps. But they also created less demand for third-party photo apps. And the same is true for other apps on the Android platform. Similarly, Amazon’s entry into a product space may discourage a potential vendor from listing the same product on Amazon Marketplace.
So, these vendors and app developers’ incentives to innovate and compete can be totally suppressed, and this calls for policy intervention.
The biggest shortcoming so far has been the lack of substantial research that shows that platform-owner entry has negative effects on platform users. In most cases, consumers get complimentary services at a lower cost.
What many advocates of tighter regulations have failed to demonstrate is how denying tech companies from participating in their platform benefit consumers. Apart from this, the effects on third-party providers are mixed. So, there is a need for careful empirical analysis before making any policy change.
For now, not even the many scandals or calls for tighter regulation have forced tech giants to tone down their aggressive growth strategies. After all, there is no major study that has found platform-owner entry to reduce value for users. But going into the future, the tensions between platform owners and third parties may become more visible.
A Computer Engineer by degree and a writer by profession, Cathy Trimidal writes for Software Tested and Outbyte. For years now, she has contributed articles focusing on the trends in IT, VPN, web apps, SEO, and digital marketing. Although she spends most of her days living in a virtual realm, she still finds time to satisfy her infinite list of interests.
February 22, 2019
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