Platform based business models create value by connecting users (both consumers and producers) on an online network. These platforms gain popularity by network effects and by eliminating barriers between consumers and producers. Platforms can be found in a plethora of industries, for example there are platforms for providing services (e.g. Uber), selling products (e.g. Amazon), processing payments (e.g. PayPal) and more (Chan, Voortman, & Rogers, 2018). Over the years, consumers have enjoyed great benefits from these platforms. However, the general public demands regulations as the rising power of these platforms have negative consequences.
The Amazon example
Let’s look at an example of e-commerce giant Amazon on why regulation is being discussed. Amazon has many third-party sellers on their platform that sell various products. It is great for consumers as Amazon has millions of products on offer for a reasonable price. Yet, what happens to Amazon when something goes wrong with a product? Imagine, a third-party seller of Amazon sells hair-dryers on the American market via Amazon. The seller purchases the products in China and delivers it to an Amazon warehouse. A customer purchases a hairdryer on Amazon and Amazon delivers it to the customer’s home. The product is working well until it explodes in the hands of the customer. After investigation, it turns out that the product did not have the right certificates to sell on the American market. Questions have arrived regarding Amazon’s liability in such a case, one can argue that Amazon is also partly to blame as they offer this product on their platform, send the product to the consumer and do not check the documents. Moreover, with every sale they also receive a fee. Up till now, only the third-party seller is to blame and has to face consequences, but this might change in the future due to the current public demand for regulations.
The current situation
The Amazon example is only one of many examples of platforms having the power to influence a consumer’s and its employees’ life tremendously, without proper rules in place to regulate this. The EU is the first to recognise the threat to consumers and started imposing regulations to platforms (Corcoran, 2020). To fight against online abuse and inappropriate content, social medias like Instagram now need to have a feature where users can report inappropriate content (European Parliament, 2020). These new regulations are written down in the Digital Services Act (DSA), if you want to know more information about the DSA please follow this link: https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package.
The future
This week, the court of the Netherlands has decided that Uber needs to hire their drivers as they should be given a minimum salary (Deutsch & Sterling, 2021). As you can see, governments are imposing new rules to platform and there are signs that changes to the business model will be inevitable. In my opinion, we are at the start of an exciting time for platforms in which a lot will change and only those who can find a way work with the new regulations can survive. What do you think? Will companies like Amazon, Uber and Airbnb still operate in the same way as they do know or will it change completely?
by Jelmer van Slooten
References
Retrieved from Deloitte: https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/humancapital/deloitte-nl-hc-reshaping-work-conference.pdf
Corcoran, E. (2020, November 20). The EU leads the way in regulating the platform economy. Retrieved from bbva: https://www.bbva.com/en/opinion/new-regulation-to-meet-the-challenges-of-the-platform-economy/
Deutsch, A., & Sterling, T. (2021, September 13). Uber drivers are employees, not contractors, says Dutch court. Retrieved from reuters: https://www.reuters.com/world/europe/dutch-court-rules-uber-drivers-are-employees-not-contractors-newspaper-2021-09-13/
European Parliament. (2020, December 15). Why does the EU want to regulate the platform economy. Retrieved from europarl: https://www.europarl.europa.eu/news/en/headlines/economy/20201008STO88810/why-does-the-eu-want-to-regulate-the-platform-economy
Hi Jelmer,
I really like your article, as I feel this subject is very relevant and interesting. The rise of the platform economy does not only lead to technical- and business-related challenges, but also to legal ones, like you describe. As (almost?) everyone in our society is familiar with buying products online, the Amazon-example that you mention could happen to all of us… and in that situation, I feel it’s only fair that Amazon contributes to a damage compensation as well.
Therefore, I thought it was great that you mentioned the Digital Services Act. I was wondering if you also knew about the Model Rules on Online Platforms by the European Law Institute. In these rules, the ELI makes a distinction between online stores, online sales platforms, and online warehouses: as their role in the supply chain differs, their responsibility and liability should differ as well. I believe this is reasonable: a platform’s liability should be determined by the importance of the role it plays in the sale of the product. I’m wondering how you feel about this!
Kind regards,
Tessa
Hi Tessa,
Thank you for your response. I was not aware of the model rules on online platforms. I totally agree that the responsibility and liability should differ based on the role in the supply chain. I agree that a platform’s liability should be determined by the importance it plays in the sale. I am very curious how the EU will cope with regulation the platform.