Platforms economics and future of worlk

1. Reference this presentation as:
• Smedlund, A. (2018). “Future of work in the platform
economy”. Invited speech at the JAIST World
Conference, Ishikawa, Japan, February 27-28, 2018.

2. Future of work in the platform
economy
JAIST World Conference, Ishikawa, Japan, February
27-28, 2018
Anssi Smedlund
Postdoctoral researcher
Aalto University School of Business, Helsinki, Finland
Center for Knowledge and Innovation Research (CKIR)
anssi.smedlund@aalto.fi

3. Anssi Smedlund
Aalto University School of Business
Center for Knowledge and Innovation
Research (CKIR) / Department of
Marketing. Helsinki, Finland
Current projects:
- Global marketplaces
- Internet of Things (IoT) firm
strategies
- Entrepreneurs performance in
service platform
Experience:
• D. Sc. (Tech.) and Lic. Sc. (Tech.);
Industrial engineering and
Management, Helsinki University of
Technology (Current Aalto University)
• Project researcher and research
director at BIT- Research Centre
2005-2014
• Visiting Scholar at UC Berkeley,
Haas School of Business 2006,
2008, 2010 ja 2015
– Organization theory, network theory
and innovation management
• Visiting Researcher, Tokyo Institute
of Technology, Graduate School of
Decision Science and Technology
2008
• 36 publications with 752 references,
h-index 13
Twitter: @ASmedlund
#digitalization #platform_economy
#network_theory #IoT

4. Content
• Platform economy; big picture
• Basic mechanisms of the platform economy
– Network externalities
– Transaction costs
– Service platforms
• Future of work in the platform economy

5. What is a platform?
• Platforms facilitate participants to co-create value resulting as
a systemic whole of products, services or both
– Platform creates processes enabling participants to co-create value
– Platforms intermediate one-sided, two-sided or multi-sided markets
• Popular examples:
– Dropbox: one-sided market (file sharers)
– Uber: two-sided market (drivers and customers)
– AirBnB: multi-sided market (landlords, renters, facility managers)
• Platforms scale quickly with relatively low resources
• Venture capital driven: The value of the platforms is defined
based on the number of participants, not today’s revenue

7. Platform economy affects organizations and processes causing
an indirect effect on society and individual’s work practices
(Multi-level model: Rouse, 2009; Rouse & Cortese, 2010; Grossman, et al., 2011)
Network externalities
Transaction costs
Service platforms

8. Basic mechanisms of the
platform economy
Network externalities
Transaction cost theory
Service platforms

9. Network externalities

10. Network externalities drive platform
evolution and growth
Platform
Side A Side B
Direct network effects
Direct network effects
Indirect network effects
(Katz & Shapiro, 1994; Shapiro & Varian, 1999)
Each new participant attracts other participants (within sides and between
sides). Causes winner-take-all situation. When participants lock-in to the
platform, switching costs increase.

11. Network externalities can be started with
pricing, one side will be subsidized on the
expense of the other side
(Eisenmann, Parker, Van Alstyne)
In this example, mobile phone application store does not charge users in
order to attract more users, but rises the price for developers who join in to
benefit from large user base.
Usually users are subsidized, since they are more fluid.

12. Network externalities can be maintained with
horizontal integration: by offering new
services for existing customer base
( https://www.rakuten.co.jp )
Rakuten ecosystem in Japan

13. Transaction cost theory

14. Transaction cost theory
(Williamson, 1975)

15. Williamson 1975 transaction cost
theory

16. Platforms lower opportunism
(increases trust) in the economy
Platform
View of the
markets
Opportunism
Uncertainty /
complexity
Irrationality
Society
Human factors Environmental
factors
1. Platform solves a
systemic problem
and answers to
challenge of
opportunism (eg.
AirBnB, Uber)
2. Platform improves
view of the markets
and prices thus
lowering opportunism
3. Platform is a part
of the society and
over time affects
irrationality,
uncertainty and
complexity in the
markets
1
1
1
2
2
2
3
3

17. Platforms in solving systemic problems
and lowering opportunism
AirBnB
-Problems in the market:
- How renter can be sure that the apartment is
good?
- How landlord dares to let stranger into their
home?
-Solution:
- AirBnB provides trust; ensuring identities of the
parties, making sure information is correct and
money transfer happens
Uber
Problems in the market:
- How can customer be sure that the ride is
safe?
- How can drive be sure that customer is safe
and has money?
Solution
- Uber providing trust to the identities, routes
and payments
 When lowering transaction costs, the platforms 1) reduce the need of formal
organizations to coordinate processes 2) bring in to the sphere of the
economic exchange such activity that used to be gray (i.e. was unprofitable to
offer due to high transaction costs)

18. Service platforms

19. Service platforms, two archetypes of
Security service
integrates to the
organization of a client
firm
= physical, tangible
service platform based
on human labor
Scheduling & cash
management service
integrates to the
organization of a client
firm
= digital, intangible
service platform based
on algorithms
(Chesbrough, 2011; Smedlund; 2012)

20. Service platform
• Service providers service is fully integrated into the client
firms processes and structures
• Services can be designed in a way that the client company
can base their business on top of them
• Payroll firm can take care of the client firms payroll department
• Uber driver application takes care of getting customers, navigating
and payments for the taxi driver
• Amazon.com, Rakuten ja Alibaba provide their suppliers with
payments, logistics, marketing, analytics etc. digital service
modules that are integrated to the supplier processes and
organization

21. Timma.fi is a Finnish service platform
for beauty industry entrepreneurs
Service modules for entrepreneurs:

22. Timma end-user application

23. Timma service platform improves
entrepreneur performance
• Entrepreneurs can focus on their core
tasks
• No answering to phone, no handling
money, easier reach to the market
• Smedlund & Hänninen (* preliminary
research results
• 67 % of the respondents (N. 250) says
Timma has improved their business
• The more service modules the
entrepreneurs use (e.g. scheduling,
payments, inventory etc.), the more
services the entrepreneur sells
Y: normalized sales
X: normalized usage intensity of service modules
(* Smedlund, A., Hänninen, M. (2018). Effects of Digital Platforms on Complementors Business Performance – Empirical Evidence from a Digital
Service Platform. Paper submitted to the Academy of Management annual meeting 2018.

24. How platform economy
changes working life ?

25. Consequences of network externalities
for the future of work
• Digital platforms will emerge to job search and performing work. Employees
and employers seek to participate in the platforms. (e.g. LinkedIn and
Glassdoor)
– Increases transparency
– Makes possible global job market
– Enables easier search and hiring of employees
• Both employees and employers have to be present at the platforms
– Service modules such as payroll, payment systems, recommendations create lock-in
– Individuals are attached to the platform, not necessary with the companies they work for.
Companies face difficulties in retaining talent if the platform offers better options
– Firms have to present at the traditional job market and platform job market simultaneously
• E.g. Taxi service in Greece: Firm / platform hybrid organization
• Project-type and task-type of work and will increase along with fluidity of the job
market = “Gig economy”
• Company-internal career ladders will break as turnover increases: platform
offers markets for talent and managers

26. Consequences of lower transaction
costs for the future of work
• Reduced need for formal organizations to coordinate work as algorithms do that
• Bring new activity to the economy (the kind of activity that used to be exchange
economy or unprofitable due to transaction costs)
• Many work roles and organization structures exist because of transaction costs,
when platforms lower transaction costs, the roles and structures change
– E.g. Taxi call centers in relaying rides become unnecessary
• Business risk that used to be bared by the companies, goes to the employees. The
buffer that organization provided will be missing
– Variations in demand and supply will affect employees' directly
– However, employees can change jobs more quickly as the market is more efficient
• So called “Platform organizations” will emerge
– Tight core of permanent employees, surrounded with modular ad-hoc, project based
organizations of freelancers (e.g. Marketing agencies)
– Boundaries of organizations will be blurred and organizations partially merge into each other
through common projects

27. Consequences of service platforms for
the future of work
• Digital service platform improves productivity of work
• Service platform takes care of task the used to be middle
managers tasks
– No need for a designated person who is knowledgeable what
others do, because service platform takes care of coordination (e.g.
Early morning newspaper delivery, taxi call centers, travel agents...)
• Organization hierarchies become flatter
– The role of middle management becomes less important, the need
for administrative staff becomes less
• Enables the emergence of new service business chains and
franchise business models
– Stores using the same service platform become easier to join
together
– Economies of scale with internal service platforms; e.g. banking,
health care services, car repair shops, retail chains etc…

28. Summary: Future of work in the platform
economy
• Network externalities  Increasing project-
based and task-based job contracts
• Transaction costs  Flatter hierarchies and
blurred organizational boundaries
• Digital service platforms  Improved
productivity of work

29. References
• The Rise of the Platform Economy. A Global Survey
– https://thecge.net/wp-content/uploads/2016/01/PDF-WEB-Platform-Survey_01_12.pdf
• Williamson, O., Markets and Hierarchies: Analysis and Antitrust Implications, Free Press,
New York, 1975.
• Katz, M.L., and C. Shapiro, “Systems Competition and Network Effects”, Journal of
Economic Perspectives 8(2), 1994, pp. 93–115.
• Shapiro, C., and H. Varian, Information rules. A strategic guide to the network economy.,
Harvard Business School Press, Boston, 1999.
• Alstyne, V., T. Eisenmann, G. Parker, and M. Van Alstyne, “Platform envelopment”,
Strategic Management Journal 32(May 2007), 2011, pp. 1270–1285.
• Chesbrough, H., Open services innovation, Jossey-Brass, San Francisco, 2011.
• Smedlund, A., “Value Cocreation in Service Platform Business Models”, Service Science
4(1), 2012, pp. 79–88.
• Smedlund, A., Hänninen, M. (2018). Effects of Digital Platforms on Complementors
Business Performance – Empirical Evidence from a Digital Service Platform. Paper
submitted to the Academy of Management annual meeting 2018.
• Rouse, W.B. (2009). “Engineering perspectives on healthcare delivery: Can we afford
technological innovation in healthcare?” Journal of Systems Research and Behavioral
Science, 26, 1-10.

30. Thank you!
anssi.smedlund@aalto.fi
Twitter: @Asmedlund