Digital platforms have become deeply ingrained in many sectors of the European economy, including mobility, shopping, travel, finance, food, music, and digital games. Through exploiting the business opportunities afforded by digital technologies, data, and AI, platform companies are now the dominant market intermediaries for business and consumers alike. 

The rise of digital platforms has expanded markets and benefited the economy, for instance, by giving greater market access to suppliers, weakening the position of rent-seeking incumbents, or helping the spatial division of labour. In turn, some platform companies themselves have grown into powerful market actors, often at global scale. Digital platforms are unavoidable infrastructures in many industries, while they also unilaterally set the rules of the game. Just in the past few months, major controversies have included Apple’s prohibitive requirements for App developers, Amazon’s preferential treatment of its own products, and Facebook’s half-hearted content moderation. The dominant platforms from the US have often undermined or circumvented existing value systems and legal regimes, leading many to sound the alarms about a platform economy that is hurting society more than it is helping the economy.

Foreign powers

Ultimately, concerns about the dominance of non-European mega platforms reach even deeper than overt problems like data protection and misinformation. In the long run, Europe risks a loss of digital sovereignty, in at least two ways: First, European organizations do not produce and are not in control of the digital infrastructure that the digital economy and society as a whole have grown dependent on. From operating systems through app stores to 5G technology, the most essential-and the most lucrative-technological products are made in North America or East Asia. Second, US and Chinese platform companies may not originally and voluntarily abide by European norms and standards. While regulators have upped the ante in terms of enforcement of rules and curtailing of market power, the mode of surveillance-based digital capitalism that transnational platform companies have set has already become deeply entrenched.

At this point, Europe has awoken to this reality, and policy efforts to reign in and redirect the foreign digital powers are well underway, all the way from EU to national and municipal levels. These agendas are necessary and meritable. Yet, attention and knowledge remain much more limited when the creation and diffusion of European platform alternatives is concerned.

Looking at the scarce empirical evidence on the homegrown platform economy, an uneven picture emerges. In short, we see immense diversity and divergence across Europe. In some industries, platforms are essential while they only play a minor role in others. In some countries, domestic competitors to American technology giants have secured respectable market positions, like Zalando or eMag in ecommerce. In the ride sharing industry, Uber is dominant in some European cities, it does not exist in others, and in some cities, regulation forced it to fundamentally alter its business model. What explains the different levels of success of different kinds of platforms across Europe? And, are homegrown European companies the key towards fairer social outcomes?

Fragmented markets

All in all, European platform enterprises have remained much smaller than North American and Chinese meta platform companies (that is, companies that offer multiple synergistic digital platform products, like Apple, Google, or Alibaba). Venture capital is much scarcer than in the US, and public subsidies and state-led coordination much weaker than in China. The vast majority of European platforms are transaction platforms while digital infrastructure platforms are rare and mostly focus on niche business-to-business markets. Our initial research confirms that, while platformization differs in degree and nature across Europe, US platforms continue to dominate in most large markets. European platforms can challenge transnational platforms only where they perfect a particular aspect of our digital lives (e.g., Spotify), differentiate through branding and supply chain innovation (e.g., Zalando), can use their unique local networks, specialist knowledge, and market insights (e.g., Siemens Mindsphere), or offer an ethical alternative for value-conscious users (e.g., FairBnB).

Notably, almost all of these business models are oriented towards the European market and aimed at specific sectors in one or a few countries. European platform enterprises may therefore not achieve global reach in the near future, but since the European market is large enough, they have a potential to grow nonetheless. Still, the European market is fragmented and, compared to North American and Chinese companies, European platform enterprises remain niche and rarely occupy infrastructural status. 

The European way

From our initial findings and conversations with entrepreneurs, it seems that European platform companies will have to diverge from treating big tech as a role model. The platform playbook of scaling fast to achieve network effects and customer lock-in will not work in most market contexts, and it does not have desirable outcomes at societal level either. Rather, in the short-term, the most promising strategy for European enterprises is to look for sustainable niches where efficient scale is achievable but size is not everything. 

Questions around European values and the continent’s social model are more complex and contested. There is a spectrum of European platform organizations. Some merely stick to basic ethical principles and abide by regulations. A second group emphasizes values like environmental sustainability to build a brand and generate trust with customers, often to set a contrast to the negative stereotype of platform capitalism. Examples in this category are Zalando or Glovo. A third group is value-driven as a matter of principle; here the business model is designed to be sustainable and equitable from the get-go. Examples are social startups like Clevershuttle and Farmy or platform cooperatives (employee or user-owned organizations) like FairBnB and Resonate.

The bottom line here is that European platforms can and should be more explicit about their distinctly European approach, and subscribe to guiding principles that acknowledge the many societal side effects of platforms. They should also publicize the measures taken to mitigate them. This would help their lobbying and branding efforts, as consumers are becoming more conscious about issues like privacy and gentrification, or as business customers begin to take matters like cybersecurity and control over data infrastructures more seriously. Taken to their conclusion, guiding principles could develop into a similar kind of (self-)certification as »fair trade« and »bio« labels in food production and global supply chains.

The cultivation of alternative governance models and modes of funding will be another necessary step for enterprises. Platform coops can be studied as real-life experiments on what works and does not work with more participatory ways of platform governance. Key will be whether smaller platforms (and other digital enterprises) are able to come together and build alternative and complementary structures that remain oriented at the public good but also leverage digital scaling economies, especially in the realm of data sharing and analysis. 

Empowered users

While it is impossible for everyone to become an expert on the digital economy, it is necessary for both business and individual users of platforms to understand the basics of digital business models. With increasing media attention, for instance, awareness is rising that social media platforms like Facebook or Twitter seek to maximize engagement and time spent on their platforms, or that services like TikTok and Google Mail mine user data, or that delivery platforms in some countries evade paying riders the minimum wage by seeing them as contractors not employees. Consumers may still decide to use these products for their convenience or quality of service, but they should try to be conscious and responsible about long-term and structural downsides.

In the same spirit, users can more actively seek out and support platform alternatives. European entrepreneurs reported to us that creating brand awareness and trust was often difficult, given the much smaller budgets of European platforms. Alternative products may not be known, even where they are actually not too difficult to find and offer comparable quality of service. Users may make conscious investments of time and money to engage with alternative platforms, ultimately resisting lock-in and standardization to a few big platforms. Business users may want to take risks and explicitly ask digital infrastructure providers for transparency.

Regulatory backstop

Yet, all the self-certification by enterprises and user awareness in the world will not be enough to rebalance the platform economy’s engrained structures. Stronger and more policy and state interventions will be required to regulate big tech, but also to stimulate European platform alternatives.

The most important and also the most difficult challenge for policymakers to ensure fair market conditions across time and space. There are legitimate reasons to look for interventions that differentiate between meta-platforms and platform upstarts, mainly because meta-platforms are already large and dominant, but also because they were able to achieve this status during times of limited regulation. Care has to be taken that new regulations targeted at big tech (e.g., concerning privacy or liability) do not hurt smaller platforms even more, effectively bolstering rather than harming meta-platforms’ dominant position.

Furthermore, meta platforms’ structural anti-competitive consequences need to be understood through a platform-specific lens. Depending on the intensity of network effects and contextual factors, user lock-in may be reached at different levels of market share (or not reached at all). This means that oligopolies in certain platform markets may not be problematic, as long as market entry and scaling for superior products remains possible, or as long as competition from the traditional economy remains strong. On the contrary, price dumping or cross-subsidizing of platform products by meta-platforms can be initially consumer-friendly but ultimately destructive. Meta-platforms also differ from smaller platform companies through more sweeping mergers and acquisitions strategies. They may acquire upcoming competitors and technology providers, with competition authorities lacking the resources and insight into the rationales and outcomes of such »killer acquisitions«. Only very few if any European platform companies have achieved lock-in or are able to engage in similar practices, legitimizing a softer regulatory stance. This is valid even in cases where platforms are leaders in individual (local) platform markets.

Similarly, policymakers ought to explicitly acknowledge platforms’ infrastructure and utility character to devise appropriate interventions, both in the form of regulation and of investments. Some platforms have become part of our societies’ essential infrastructure, and essential infrastructure should not be entirely in the control of outside interests. For instance, the Covid crisis has led some governments to officially label food delivery platforms as essential services. Recent debates around Apple’s API and App Store policies have reaffirmed this argument. Defining essential infrastructures is difficult but necessary, including at municipal levels. 

Europe’s digital economy is facing a series of crucial questions about its future. What is clear is that the status quo of a few mostly North American big tech companies controlling the infrastructures of our digital lives has begun to erode Europe’s digital sovereignty and, in part, its social model. What is unclear, however, are the measures that must be taken in order to reconnect European values with the platform economy. Our research suggests that all stakeholders, at all levels, will have to pull together and turn the unique challenges of the European context into uniquely European advantages.

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Dieser Beitrag erscheint im Rahmen der Reihe #onezerosociety. Darin gehen wir in Zusammenarbeit mit dem Goethe-Institut den Formen, Möglichkeiten und Grenzen einer bestehenden und kommenden »digitalen Zivilgesellschaft« nach.

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