Rather than deploying this capital towards traditional competition in (saturated) global markets by offering specific goods and services, platform firms instead aim to build business ecosystems in which their infrastructure intermediates exchanges between external users, developers, and (sometimes) advertisers (Kenney and Zysman, 2016). This requires typically very considerable investments in both tangibles and intangibles, R&D, and outlays on user recruitment (Klinge et al., 2023). Because platforms’ services are substantially intangible, their low marginal cost affords opportunities to achieve scale and scope economies at breakneck speed, supported by the use of cloud computing (Narayan, 2022). Once critical scale has been achieved, the switching costs imposed by network effects serve as a powerful way of locking-in user bases. Margins on transactions are often tiny, but low margins can be offset with extremely high volume. And platforms operate across multiple horizontal business lines, using cross-subsidization to build attractive multi-service ecosystems (Thomas et al., 2024). Given their privileged access to financial markets, profitability is often less of an imperative (at least in the short term) for platform firms than their ability to scale. According to one estimate, platform firms will soon come to mediate one-third ofall global economic activity (Dietz et al., 2020).
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Reinventing Capitalism