Platform economy

The platform economy refers to economic activity conducted on digital platforms. Digital platforms are online marketplaces that connect suppliers and consumers using several different methods. These methods can include platforms that facilitate business transactions, foster innovation, or act as a combination of both. They can also provide a place for investors to conduct financial transactions. Platforms can be purely digital and exist in online form only or the digital arm of a traditional brick-and-mortar company. Spurred by the rise of the Internet in the late twentieth century and the proliferation of smartphones in the early twenty-first, the platform economy has grown rapidly. By 2024, four out of five of the largest global corporations relied on a business model based on the platform economy.

Background

Prior to the rise of internet technology, most of the world’s economies were based on traditional methods with origins dating back centuries. These traditional methods involve the production and sale of goods and services from the seller to the consumer through a direct interaction. In some cases, goods are produced or manufactured at one location, transported, and sold to the consumer at another location. Other times, producers sell their product or service directly to consumers. For example, toasters can be manufactured in a factory, shipped to a department store, and sold to the public; at the same time, farmers often harvest their crops and sell them directly to consumers at farmers’ markets or roadside stands.

In the broad sense, the idea of using a “platform” as a place to sell goods and services is not exclusive to the digital economy. For decades, sellers used shopping malls, department stores, grocery stores, trade shows, and other physical locations as platforms for their products. Manufacturers also utilized platforms such as mail order catalogs or newspaper classifieds to make their goods available to consumers.

The concept of a platform began to change in the 1990s with the rapid rise in popularity of the internet. Powered by the invention of the World Wide Web in 1990 and the dawn of online search technology, the internet brought significant business and economic change by the end of the decade. The introduction of the smartphone in the mid-2000s proved equally as revolutionary, giving users instant access to the internet in the palm of their hands. The rise of social media and development of application technology also expanded the scope of the digital landscape. A further boost to the growing digital economy came in the form of advanced mathematical algorithms that examined users’ online habits and targeted them with information specific to their needs. Another factor was the development of cloud computing, which allowed elements such as data storage, servers, databases, networking, and software to be accessed via the Internet rather than from a physical location.

Overview

As consumers began to shift their buying habits away from traditional economies and toward online goods and services, the term platform economy became attached to the digital marketplace in the early 2000s. The term applied to companies that were formed specifically as internet businesses as well as the move by traditional companies to offer online services in addition to their physical locations. Other names for the new trend included the creative economy, sharing economy, on-demand economy, or gig economy. In some cases, the platform-oriented businesses completely outpaced the traditional brick-and-mortar businesses, forcing some of them to cease operations. For example, the digital streaming platform Netflix, which was founded in 1997, had spelled doom for the movie and video game rental service Blockbuster by 2010.

The modern platform economy is built upon businesses offering goods and services to consumers through digital platforms. In general, businesses that adhere to the platform model operate in four different ways. The most common is a transaction platform, which is sometimes referred to as a digital matchmaker. Transaction platforms connect sellers with buyers who may be searching for a specific good or service. The most high-profile example of this type of platform is the online retailer Amazon, which had an estimated market value of more than $2 trillion in 2024 and reported $620 billion in net sales. More than 1.9 million sellers were active on the platform in 2024, out of 9.7 million total sellers.

Other notable examples of transaction platforms include the online auction site eBay, which reported $10.2 billion in 2024 net sales; Airbnb, a vacation rental marketplace valued at $83.28 billion in 2024; and Uber, a ride-sharing company that had $11.2 billion in net revenue in 2024. Social media platforms such as Facebook and X (formerly Twitter) are also considered transaction platforms because they can facilitate business by bringing together buyers and sellers who otherwise may have never met. Online employment services such as LinkedIn and Monster are types of transaction platforms that match job seekers with employers looking to hire.

Innovation platforms offer technology that people can use as a framework or building block to create, market, or sell their own goods or services. For example, the technology company Microsoft has been making software products such as Windows and Office that people have used for decades for a variety of different functions. By 2024, Microsoft was valued at $3.3 trillion and had global revenue of more than $245 billion. In addition to software, other innovation platforms provide hardware and applications that users can use to create content tailored to their needs.

Integration platforms combine elements of transaction and innovation platforms. Typically, these consist of software or application downloads that people use as an online marketplace. Examples include the Apple App Store, a digital platform offering mobile applications for Apple’s line of iPhone and iPad operating systems. Another example is Google Play, which offers the same services for Google’s Android operating systems. The last category is investment platforms, which consist of companies that facilitate online investments and offer online financial advice and portfolio strategies. E-Trade, TD Ameritrade, Robinhood, and Fidelity are just some of the many examples of this type of platform.

In 2015, the nonprofit research group the Center for Global Enterprise conducted a survey that identified 176 companies that followed the platform business model and had a combined estimated value of more than $4.3 trillion. According to the survey, eighty-two of those companies were based in Asia, with sixty-four in the United States; however, the US-based businesses performed better, with an estimated value of $3.12 trillion compared to $930 billion for the Asian companies. The US companies also employed more than 820 million people, while the Asian companies employed 352 million.

Many business experts see the platform economy as increasing productivity and providing a more efficient way to do business. E-commerce platforms often use algorithms to match prospective buyers with sellers based on a user’s online activity. At the same time, platform sellers do not have to be the producers or manufacturers of a product or service. They can simply match the manufacturer with a potential buyer with no need to invest in physically storing inventory. Some platforms, such as Amazon, do both, selling goods from their own warehouses and facilitating sales directly from third-party sellers. At the same time, some experts have expressed concerns about platform-based businesses, seeing them as possibly undermining competition and threatening the existence of brick-and-mortar locations.

A clear sign of the shift toward a platform economy can be seen in a comparison of the top global businesses from 2008 and 2019. According to CompaniesMarketCap, at the beginning of 2008, the top two global businesses were gas and oil companies—PetroChina, a state-run Chinese company with a market capitalization of $737 billion, and US-based Exxon Mobil, with a market capitalization of $504 billion. Other businesses on the list included the US technology company General Electric, the communication company China Mobile, and the Industrial and Commercial Bank of China. Microsoft was the only digital platform company in the top ten, ranking at number seven with a market capitalization of $172 billion.

By 2024, four out of five businesses on the list were part of the platform economy. According to Global Finance in September 2024, noting a constantly fluctuating market, the largest company in terms of market capitalization was Apple Inc. at $3.3 trillion. Microsoft was number two with $3.2 trillion, and Nvidia, an artificial intelligence (AI), autonomous machines, and computing applications company, was third with $2.86 trillion. Alphabet, the parent company of Google, Amazon, Saudi Aramco, and Meta, the parent company of Facebook, were the other companies to break the $1 trillion mark, between $1.96 and $1.35 trillion respectively.

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