Part 2: The Digital Platform Economy and Who Owns It

[Español] To understand the digital platform economy better, this paper breaks down below the various types of platforms, how data changes from raw material to monetized good in the digital value chain and how the discussion on digital trade should not be limited to whether or not tariffs are to be imposed on electronic goods and services but rather, more importantly, should include the complex and vast discussion that needs to be had about data – from privacy to ownership to its free or paid flows, and the potential for the misuse of data for monetary gain.

This paper will also go through the who is who in this new world of digital platform economy and how seven of these companies are now in the top 10 of the 100 global companies published by PriceWaterhouseCoopers this 2020.

As mentioned in the beginning, because of the lack of consensus on the definition and coverage of e-commerce on the international level, particularly in the WTO, the impact of having no internationally enforceable rules on digital trade, has had a significant impact on the lack of regulations on the astronomical growth of technology, financials and consumers services companies in their conduction of e-commerce. The WTO of course is not the only one to blame, however, the agreement to extend the Moratorium on imposing customs duties on e-commerce since 1998, has left a free for all in terms of implementing what definition or interpretation of rules would benefit them best. Several countries, which will be delved into the next chapter, have already in fact entered into regional free trade agreements and other systems of taxations around digital trade, choosing to move forward as the WTO, which had been having critical problems itself around the dispute settlement mechanism, has been almost at a standstill on the issue of negotiations. Again, later, the proposal for the co-convenors of the small group discussions on negotiations on e-commerce is to present a consensus proposal on e-commerce soon. The following section of this paper will delve deeper into the debate and current state of play on the proposals and existing rules and regulations around e-commerce. For now, we delve into the world of the digital platform economy.

Digital platforms

Going back to the digital platform economy, as the UNCTAD defines it, “Digital platforms are technology- enabled operations that facilitate interaction and exchange between various groups, built on a shared and interoperable infrastructure and driven by data. They operate over a range of activities. Transaction platforms enable interaction between individuals who would otherwise not find each other; innovation platforms provide technological building blocks enabling innovators to develop complementary services or products.”[i]

First and foremost, digital platforms would not be where they are now without the innovation in information, communication and technologies; and massive infrastructure that support these advancements such as cables, faster processing hardware, smart mobile phones capable of doing most functions of computers and tablets; human imagination and skills, particularly in the science, technology, engineering and mathematics (STEM) fields. The race to innovate was supported by investments but probably equally so by the demand and competition.

Suddenly, the “computer and tech nerds” were leading the race. “Big Tech” became bigger than regular traditional companies. “By 2015, the 17 ICT companies that were in the top 100 TNCs globally accounted for a quarter of the total market capitalization of these top companies and 18 per cent of their profits, even though their sales revenues amounted to less than 10 per cent of the total.”[ii] This basically means that even though the ICT companies were booming, this was a specialized field where employment that was at first far and few, were attracting young STEM innovators who brought with them fresh and new innovative ways to even further the ICT field.

One very good example of the beginnings of innovation from hardware to software to digital platforms is when Apple introduced the first iPhone more than a decade ago, the playing field was all of a sudden no longer even. Smart mobile phones could no longer just be able to make phone calls and emails, it had to be able to do all if not more of what the iPhone could do. Photographs, videos, music, and all of that in a high quality display that rivaled some computers. Also, Apple cornered a market with its App Store –  a virtual store where an iPhone owner could buy applications for their phone. The social media savvy companies gave theirs available for free download. Games were also free but add-ons inside the game were for sale. There were also work related applications designed to sync documents or presentations from your Macbook or Apple computer. Application developers were all lining up to be included in the Apple App Store, and all they had to do, aside from agreeing to community standards and rules of Apple, they simply had to pay a percentage (presumably a reasonable price, considering the profits the developers were making) to Apple from the profits they made from the applications. A presumably small price to pay for access to a market of millions of Apple users. Apple also has iTunes, a subscription application for music, podcasts, and a number of other audio products. For a small monthly or yearly fee, the iPhone user had access to the vast selection of music and radio shows that Apple had. The Apple iTunes even had the entire Beatles collection, a complete set that was very hard to find online let alone in physical form of records because of its copyright issues and rarity due to the huge fan base. Apple blew its competition out of the water. It had the hardware, a phone that would have won a beauty pageant for gadgets if there were such a thing, software that was supported by processors faster than any at that moment in the market, and more significantly, it created its own marketplace, or what we would technically call a digital platform economy. The App Store would fall under the specific category of transaction digital platform. As a note, as other platforms such as Android and others caught up, application developers also designed apps that could run specifically run on Android and others and not only Apple.

To concretize this discussion, as of 2019, Apple reported having approximately a billion people using more than 1.4 billion Apple devices.[iii] This means that on average, Apple users have more than one Apple gadget, probably a computer and a phone. Apple also estimates that there are around 900 million iPhones in use[iv] and that usually these are not shared. An iPhone is usually used by one user.

Apple AppStore versus Fortnite

One would assume that a game developer would not mind paying fees to the host App Store when the Fortnite players buy add-ons while playing their game on their Apple gadgets whether the iPhone or iPad. It is a small price to pay as one would think that Fortnite would not have had access to Apple users otherwise. However, the game developer, on August 13, 2020, Epic, in breach of contract with Apple, revised the code of their game to allow players to pay Epic directly for the add-ons and bypass the App Store all together. Apple kicked Epic out of the App Store and a court case soon followed, with both parties suing the other.   As a result of kicking Fortnite out of the Apple platform, Fortnite lost an estimated 73 million users who only use the game on the Apple platform. That is a big number considering that there are only 116 million mobile users who play the game.[v] Fortnite claims it has 300 million players but it is not clear how many of those have been lost because those players only played on the Apple platform.[vi]     “A US judge hearing arguments in Epic’s antitrust lawsuit against Apple has criticized the game developer’s decision to breach its contract with the iPhone maker by pushing a version of Fortnite with a custom payment system onto the App Store. The decision resulted in Apple removing Fortnite from the App Store.   During a hearing on Monday with both companies, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California expressed skepticism about Epic’s arguments, particularly its claim that it did not pose a security threat to Apple because it is a well-established company and partner.   “You did something, you lied about it by omission, by not being forthcoming. That’s the security issue. That’s the security issue!” Rogers told Epic, according to a report from CNN. “There are a lot of people in the public who consider you guys heroes for what you guys did, but it’s still not honest.”   The three-hour hearing, which took place over Zoom, did not settle any of the open questions in Epic’s ongoing antitrust lawsuit against Apple, including whether or not Fortnite will be allowed to return temporarily to the App Store. A decision on that issue is expected “in the coming days,” according to The New York Times.   Judge Gonzalez Rogers did recommend, though, that the case be taken to a jury trial in July next year to settle these issues permanently. “It is important enough to understand what real people think,” said Rogers. “Do these security issues concern people or not?”   According to CNN, Judge Rogers said she was “not particularly persuaded” by Epic’s argument that Apple has bundled its App Store and in-app payment system together in violation of antitrust law. The judge also said she did not necessarily agree with Epic that Apple has harmed its ability to distribute Fortnite through its control of the App Store.   “Walled gardens have existed for decades,” said the judge. “Nintendo has had a walled garden. Sony has had a walled garden. Microsoft has had a walled garden. What Apple’s doing is not much different… It’s hard to ignore the economics of the industry, which is what you’re asking me to do.”   The lawsuit between Apple and Epic has become a rallying cry for many developers dissatisfied with the iPhone maker’s App Store policies. Last week, companies including Epic, Spotify, Tile, and the Match Group created the Coalition for App Fairness, with the aim to “defend the fundamental rights of creators to build apps and to do business directly with their customers,” according to Epic CEO Tim Sweeney.” Source: https://www.theverge.com/2020/9/29/21493096/epic-apple-antitrust-lawsuit-fortnite-app-store-court-hearing   This fight between Apple and Epic will be interesting to watch as the decision would serve as a precedent of who a court would side with – the Apple platform or the game developer Epic. There are spirited debates on this issue online, stating that the developers would not have even reached their audiences if not for the platforms such as Apple. However, a question to ask is if digital platforms have gained too much power and money. As mentioned earlier, seven of the top 10 of the top 100 companies published by PriceWaterHouseCoopers this 2020, are digital platforms, Apple being number two. Another side of this debate however is that platforms have community guidelines to protect users and have sophisticated security software that protect users sensitive information such as credit cards, names, addresses and a whole list of other data.  

As can be seen in this, Apple is not the only actor in the digital platform economy, and the numerous other examples will be delved into shortly. First, as illustrated, there are two main categories of digital platforms: Transaction and Innovation. Table 2 below shows an example of the different categories of digital platforms.

Innovation is where technology companies, developers and other STEM innovators, come together and share, exchange, discuss and debate ways in improving existing technologies, software and even code. This platform benefits from more participants contributing ideas as these more often than not, improve on the existing technology and software and also help make it more difficult for hackers to hack in and destroy, steal or use data and other personal information for nefarious purposes. Hackers are a constant threat for companies that hold sensitive data and so developers designing new and updated security codes and protocols benefit the whole community.

Transaction platforms are where various users meet and possibly interact. Facebook is an easy example to explain: A person who would like to sign up to Facebook in order to contact old friends or make new ones, will freely give their “basic” data to Facebook, such as age, location, preferences, and then Facebook signs that person up for free. But as they say, there is no such thing as a free lunch. Because you’ve clicked OK to Facebook’s terms and conditions without reading it, which includes sharing general demographics about you, nothing personal or sensitive, Facebook can now feed this data into their algorithm which then matches you with advertisers, developers and of course, people they think you would be friends with. It is a friendship social media platform after all. That free of charge signing up to Facebook was in fact not free at all, because they just used your freely given data to then charge advertisers and developers to connect them to you especially because based on the algorithm, it looks like you would be interested in the goods and services they have on offer or sale.

Why then would developers and advertisers pay good money to platforms such as Facebook for an aggregate analysis of the Facebook users data, including you? It is because data, even if it seems nothing to put a name, age, location and preference in music or fashion brand; it is everything to a developer who wants to tailor an application to a particular demographic or an advertiser who wants to target their advertising. Have you every clicked like on an ad in Facebook, say, for a nice dress? Notice how that dress then somehow subconsciously stays in your mind because it is actually keeping its constant presence with one or two ads in the different platforms you’ve gone on. Some developers, like applications such as Spotify, are collecting their own data on the people who use their application. They collect data on which artists you like, when you like to listen to music, how many times you’ve listened to a particular playlist or song. Then they made advertisements generated from their data. The reactions were mixed, they were funny ads but on the other hand, did you realize that Spotify was listening to your EVERY single move in their application? This is called data mining.

An easy visualization made by the UNCTAD of e-commerce in the landscape of digital platforms This can also help have a snapshot of the players of the digital platform economy and even a portion of the larger digital economy.  

The top platforms

Data mining in this digital platform economy is the new mining for raw material. Data is the new raw material. Your data is the new raw material. The new digital platform economy transforms this raw material of data into profitable and monetized forms. Just as illustrated earlier in the data value chain, Figure 2, the figure shows you how raw data is then processed in a global value chain until it reaches its monetized state. The “Big Tech” companies had caught on to this early and had and have been making the most of it. Incredibly, with this new form of economy, seven of these super platform companies are now in the top 100 companies in the world in the 2020 published listing of PriceWaterHouseCoopers. The seven super platforms are: Microsoft, Apple, Amazon, Google, Facebook, Tencent and Alibaba. It is crucial to note that not all these seven super platforms are technology corporations or “Big Tech”. Amazon, for example, is classified as consumer services. Alibaba, which stands at top 8, is not a technology corporation as well, it is also classified as consumer services. Having a digital platform does not necessarily translate to your corporation being a technology company. Not everyone in this top 7 are “Big Tech”.

Not all these seven super platforms, given the lack of consensus on the definition and coverage of digital trade, cannot all be classified as companies under e-commerce. One crucial element of the definition of e-commerce is that the digital good or digital service is delivered digitally. Companies like Amazon and Alibaba offer more physical goods that they deliver in their physical forms. So, yes, all seven super platforms are defined as digital platforms because of how they are designed and operate. The whole transaction is online, browsing for items, choosing them, purchasing them with a credit card, paypal or other electronic financial means and choosing a mode of delivery. Digital products and services, are delivered to your chosen digital device or gadget. Whereas a physical product delivered is physical, not digital, and therefore, as currently proposed in the debate on rules, is not qualified for the exception of tariffs or other customs duties. Even without crossing borders, depending on a country’s taxation rules, a physical good can be subjected to value added tax or other taxes. Keeping it to cross-border in the discussion of international trade, even if Amazon is making billions, those goods are most likely subject to taxes, and not qualified to be classified as digital trade.

Apple though, is slightly different. It is the company that designs, manufactures and sells the hardware – iPhones, Macbooks, iPads and a whole host of other products – and it designs, controls and sells the software and electronic marketplace that Apple users can then avail from once they have the Apple gadget. It is both a traditional manufacturer of physical technological products but it is also a designer and seller of digital goods and services. It is also a digital platform as it allows developers to pay a fee to join the Apple Store and sell their digital goods and services to the billion Apple users. This combination is the probable reason why Apple is number two in the PriceWaterHouseCoopers list of Top 100 companies for 2020. See Table 3 and 3.1 below.

The skewed distribution on the world map emphasizes the digital divide and the urgent need to do more to address this. The pie chart above, visualizes what was earlier discussed that information, communications and technology and consumer services had grown exponentially and had enabled the boom of some of the super platform companies. Digital financial services as the close second while all the rest are still quite far behind.

Whereas, as you can see in this visual above, Figure 6, this distribution of wealth is greatly skewed to those who have the skills, infrastructure and funds. The worst part of these statistics is the fact there are half of the world’s population remains offline. How can the Digital Economy be even making plans to move forward without clear international trade rules, let alone, without the half of the world’s population. Are they all just going to get left behind as the digital platform economy continues to earn millions of dollars.

[i] United Nations Conference on Trade and Development (2018) “Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion” UNCTAD New York and Geneva

[ii] United Nations Conference on Trade and Development (2018) “Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion” UNCTAD New York and Geneva

[iii] Cybart, Neil. (2019) “Apple’s Billion Users” https://www.aboveavalon.com/notes/2019/5/30/apples-billion-users

[iv] Cybart, Neil. (2019) “Apple’s Billion Users” https://www.aboveavalon.com/notes/2019/5/30/apples-billion-users

[v] Tassi, Paul (2020) “‘Fortnite’ Has Given Up 73 Million iOS Only Users In Order To Fight Against Apple” https://www.forbes.com/sites/paultassi/2020/10/10/fortnite-has-given-up-73-million-ios-only-users-in-order-to-fight-against-apple/

[vi] https://www.statista.com/statistics/746230/fortnite-players/

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