“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
~ Adam Smith
There are countless keynote speakers, business consultants and best selling books that will tell you how technology is “disrupting” everything and eating middle men for lunch, left, right and centre. From travel agents to ad men to newspaper publishers and stockbrokers, everywhere you look, tech companies are out to collect the bounty’s on rent-seekers heads.
There tend to be somewhat fewer op-eds by high profile, highly paid thought leaders, however, pointing out the obvious corollary: that is that tech companies are, in reality, not so much removing all those greedy rent-seeking middle men, as they are, well, replacing them.
Rather than eliminating dead weight loss and freeing the free market from extortionary tolls; the giant platform businesses of today (and, let’s face it, all the biggest tech companies around today are platform businesses, or two-sided market makers) are well on their way to becoming digital landlords, trapping the unwary businesses that depend on them into effectively paying taxes in order to participate in the global market place.
Now, these taxes, tolls and rents could well be (and very often are) ethically and economically reasonable – after all it is not any more morally questionable or financially problematic to pay an online market maker for clicks or eyeballs than it is to pay a physical mall for foot traffic – however there is another hidden cost that is perhaps much more dangerous.
What platforms give in terms of efficiency and economies of scale, they take in terms of resilience. Much like with the trade-offs globalisation offers nation states, the platform economy provides access to market at a speed and cost that individual players would be unable to provide on their own. However, the trade off that comes along with all this ease and efficiency is (again, just like globalisation) a reduction in autonomy and reduced control over one’s own value chain. This is because the price of joining a platform as a service or product provider, is handing over data – or more to the point, having a third party get between your business and your customer. In the extreme case, as is what happened with Apple, when it denied iOS app developers access to end user personal information; the platform can expropriate your direct relationship with your consumer all together. In a digitised world where the human touch, or personal relationships are the last frontier of competitive advantage, and indeed, margin, this should give businesses pause for thought.
Furthermore, what platforms give, platforms can take away. Platform and other cloud-type servicer providers can, much like landlords, change the terms and conditions of service, and/or raise the rents once you have become dependant on their services, sometimes with very little warning. Google Drive users know this all too well, when they were informed that the formerly free cloud storage service was getting a price; and, failure to pay up by the deadline, would result in them losing all their saved data. Of course, the Google Drive example is primarily a retail rather than a corporate case study, but the same principle applies to any freemium or subscription based service your business depends on. While these services can seem far simpler and more cost effective in the beginning than building your own tech stack, all too often the Ts & Cs start to add up. (Uber drivers can tell you all about that.).
Platforms, indeed, can decide, overnight, to deny you service altogether if you businesses fails to align with their political leanings or current popular ethical fashions.
The moral of the story? Don’t put all your corporate eggs in the same corporate basket.
This article was first commissioned for Brainstorm magazine.