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Data Ownership, Regulation, and Blockchain Dominate Platform Markets

Aug 15, 2018   |   by Geoffrey Parker, Marshall Van Alstyne, and Peter Evans   |   MIT Initiative on the Digital Economy

July 13 Platform Strategy Summit explored new topics at MIT

It’s been an eventful year for digital platforms. While still true to their origin as open marketplaces and production facilitators for goods and services, the trajectory has veered and platforms have become a focal point of online data exchange and all its permutations. Consider the following major developments:

  • Facebook ads are linked to fake news and election meddling, and revelations surface of data leakage to Cambridge Analytica;
  • General Data Protection Regulation (GDPR) takes effect in the E.U. with regulatory privacy changes that establish users’ data rights and enforce corporate transparency;
  • The Payments Service Directive 2 (PSD2) obligates banks in the E.U. to open their systems for payment service providers and account aggregators;
  • Blockchain spreads beyond cryptocurrencies into data watermarking and online business contracting.

New Role for Distributed Ledgers

Although there is danger of hype, Blockchain technologies may be key to establishing the origin of data and the rights of other entities to use that data. Distributed-ledger technologies can shift organizational forms from centralized to decentralized, and give users rights to their data. As we wrote in a recent academic article:

“In contrast to a centralized infrastructure controlled by a single party (e.g., a bank, an electricity provider, a logistics provider, etc.), distributed ledgers that enable smart contracts can perform trusted operations in a decentralized infrastructure. Through a consensus mechanism, parties with the right to validate new transactions can update the Blockchain and interact directly with each other anonymously, and without the need for central coordination.

Blockchain infrastructure holds out great promise, to increase the speed of exchange, reduce the number of intermediaries and associated costs, improve security, digitize assets, give wider access to disadvantaged groups (especially in emerging economies), and improve regulatory compliance.”

Clearly, there was no shortage of fresh topics to explore at the recent 2018 Platform Strategy Summit held at MIT on July 13. A wide range of industrial executives — representing Rolls Royce, digital platforms Uber and Airbnb, Thomson Reuters, and Kaiser Permanente — addressed the impact of platform developments on their businesses and on global markets. Panels on Blockchain, entertainment, healthcare, and AI-driven innovation drilled down on emerging technologies and future directions.

Several important themes are dominating the platform conversation this year. Whereas, earlier concerns centered on how to set up or participate in digital markets, questions of privacy are top-of-mind again, as Cambridge Analytica and GDPR continue to make headlines. We will contrast the very different regulatory approaches in the E.U. and U.S., and discuss what dominant as well as smaller companies are doing to comply. More broadly, we’ll take a macro view of the key issues of how to create value from the rapid explosion of data, who owns it, and how is it shared?

Who Owns the Data?

As platform markets mature, and AI and machine learning play greater roles, the dominant cloud players — Alphabet, Amazon, and Microsoft — are all gaining clout as repositories for huge amounts of data. At the same time, platforms are becoming pervasive in sectors like agriculture, energy, finance, and healthcare where consumers and business owners want control over their data, and where it’s stored.

Consider precision agriculture: A revolution in the use of data to increase productivity is underway. Farmers are provided information on where to plant seeds, how much fertilizer to use, and when to harvest. Self-driving tractors collect and report data such as seeds planted, soil composition, and atmospheric conditions.

The productivity boost is great, yet the data that farmers provide to manufacturers has application far beyond improving the basic productivity of farms — from powering seasonal labor markets and selling insurance, to driving commodities trading. The question farmers might reasonably ask is how much value is being created from their data, and can they benefit from it, as well?

Another recent example is voice technology and the devices that enable it. Voice technology grew significantly in 2017, reaching 20% of the U.S. adult population. The rise is driven, in part, by the success of smart speakers like Amazon’s Echo and Google Home. Three of the most valuable platform companies, Alphabet, Amazon, and Apple, now offer smart speaker technology — not only to advance their branded music platforms, but also to grow a wide range of apps for these in-home hubs. This year, more than 60 million smart speakers are expected to be sold worldwide.

Voice Platforms Get Louder

Consumer and home sales are leading to increased interest in enterprise voice-technology deployment. For example, WeWork is one of a number of organizations testing voice platforms to boost office productivity. Voice technology offers the potential to streamline conference calls, set up virtual meetings, and quickly access presentations and other work documents. These technologies are creating new data streams, but also raise questions regarding the benefits of data to the platform versus its users.

More generally, we will consider what platform compensation models look like, and who should profit from data generation and value capture — platform stakeholders, customers, or providers? How do you assert downstream ownership rights when network effects change the dynamic? At a time when ISPs, social media, and advertisers are permitted to access and sell vast amounts of online data, consumers should no longer trust providers to safeguard their privacy.

And the data is ubiquitous.

Every ‘like,’ post, view, and click-through provides information that search engines and algorithms use to figure out how to match seekers with what they seek. Further data explosion and capture will occur as Alexa, Google Home, Siri, facial recognition, and other systems capture the most intimate details of our lives. The design of platforms will be critical in determining whether the data is used to benefit consumers or to exploit them. Platform control will matter.

GitHub’s Ecosystem

Finally, we note that third-party developers continue to be central to platform innovation, strategy, and growth. Microsoft drew attention when it announced in June that it was paying $7.5 billion to acquire the open-source programing community GitHub for 30-times annual recurring revenue. On the face of it, the transaction would seem to make little financial sense until you consider that GitHub has over 28 million users and serves as the largest host of computer source code in the world. The ecosystem benefits are potentially large since Microsoft will have access to significant developer data and numerous ways to channel developers to its multi-platform environment.

Scarcity of specific developer talent, especially around AI, is driving innovations aimed at securing third-party talent. Companies, such as Intel, have established AI academies to attract experienced developers and nurture budding coding talent.

The points above beg the question: What is your action plan? Follow us at #MITPlatform to learn about these and other critical aspects of the unfolding platform revolution.

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