Analytical paper: “Multi-homing: obstacles, opportunities, facilitating factors”

The support study team has just published a paper on multihoming in online platform economy.

Multi-homing is a situation in which users tend to use several competing platform services in parallel. This applies to all sides of the market: businesses using different platforms to sell their goods and services; customers (buyers, end users) switching between different platforms to buy the goods and services that they need. Multi-homing may help to counter the network effects and subsequent economic power that large platforms benefit from. If business users as well as their customers could easily change platforms or use several platforms in parallel without significant costs and inconveniencies, this would make markets more competitive and decrease the economic power of large platforms. It could lower barriers to entry for emerging new platforms and foster innovation.

The analysis carried out in this paper showed that most business users of online platforms (sellers, producers, content creators, advertisers, hoteliers) tend to multi-home in the sense of using more than one platform to sell their goods and services. The extent of multi-homing varies depending on the specific market and the nature of the good or service offered. For example, if a business sells a unique product which is the best fit for a specific, dedicated platform (e.g. handicrafts on Etsy, classic cars on eBay) such business is more likely to single-home. More than half of app developers single-home, given the complexities of developing apps for the different and incompatible app stores (Google Play, Apple App Store).

On the other side of online platforms, the end users (buyers, rentiers, consumers, app users) tend to multi-home in the sense of having installed (or at least being aware of) about more than one platform that is useful for the tasks they want to implement. For example, most buyers access several platforms for buying goods, services, liaising with friends, consuming social media, renting hotels or short-time accommodation. Nevertheless, when it comes to doing specific tasks (such as buying groceries, ordering food from local restaurants, ordering a car ride, checking weather) user preferences tend to become ‘sticky’, i.e. one platform becomes the main choice most of the time due to the habit, convenience, speed, familiarity, network of friends, etc. However, if alternative platforms exist and users can switch with a relative ease, it constrains the market power of the ‘sticky’ platforms. Most of end users single-home when doing online search where Google Search is by far the most prevalent search engine. When it comes to downloading and using apps, most end users single home on either Google Play or App Store as these are the dominant app stores on, respectively Android and iOS operating systems that are not compatible with each other.

For business users multi-homing offers a number of advantages and may be part of the business strategy to increase sales, through: firstly, diversifying the user base in that some customer demographics may prefer one platform over the other; secondly, gaining access to a variety of geographical markets in that some platforms have a significant market position in individual countries (for example, in e-commerce: Allegro in Poland, Bol.com in the Netherlands, eMAG in Romania). Yet other businesses choose to single-home, also as part of their business strategy or due to limited capacity to multi-home. Single-homing may become a business strategy in cases when a business is satisfied with the quality of the service offered by the platform, including user access and experience, data access, other terms and conditions, conflict resolution. In some cases, no other platform exists that could be used to reach the clients (this is pertinent for around 20% of businesses, according to the business user survey), for example, when businesses sell highly specialised products and services.

Our analysis revealed cases when actions taken by online platforms to ensure loyalty of their business or end users (in effect – to foster single-homing) become an issue from the public interest and public policy perspective. These include deliberate actions of platforms that wield significant market power and use such power to nudge businesses to make choices that would be unlikely in competitive markets. Online platforms develop their market power by drawing on the network effects, data access and product innovation. Some platforms (e.g. Amazon, Google, Facebook, Apple) have also engaged in the development of large integrated ecosystems by copying, buying out, integrating or discontinuing competitor platforms as well as using exclusive agreements with other platforms or market players in order to entrench the dominant position. For new platforms, entering such markets is extremely difficult, even for those pursuing the differentiation strategy. This limits scope for innovation on the market and deters possible entrants even further.

In some markets businesses appear to multi-home in the sense of using several platforms to sell their goods or services. Nevertheless, these markets are clearly dominated by one platform, for example, Amazon in ecommerce, Booking.com in hotel accommodation, Airbnb in short term accommodation, Google Search in online search and advertising, Facebook in social media advertising; or two platforms, as it is the case with Google Play and Apple App Store among the app stores. Markets have ‘tipped’, with some platforms creating ecosystems within which most end users find it convenient to single-home. From the perspective of business users, while there might be a variety of platforms operating in the pertinent markets, it still feels like single-homing. The key reasons include:

  • The businesses (sellers of goods and services, hotels, app developers) find themselves in a position where they must be on the platform if they want to reach most of their potential users (buyers, rentiers). The dominant platform cannot be substituted by other platform or platforms without a loss, by the business user, of a significant share of consumers.
  • The dominant platform imposes terms and conditions that business users feel are unfair or unfavorable to them, but they comply as they feel that they do not have a choice. Such terms and conditions concern, for example, the commission charged by the platform as well as limits to data access.
  • Platforms also exert influence over the pricing strategies by businesses, with explicit or implicit sanctions of delisting or decrease in ranking if the business refuse, for example, to offer discounts or other amenities.

Multi-homing could be facilitated by taking actions in several directions:

  • Firstly, by creating a framework that allows business users and end users to use multiple platforms and switch easily, in particular through data portability and interoperability     
  • Secondly, by identifying the dominant, gatekeeper platforms and mandating them to open up data access as well as prohibiting actions that lock in users and stifle competition
  • Thirdly, by adapting competition policy to the fast-changing digital markets, and complementing the current regulatory regime with innovative tools and enforcement mechanisms

Analytical paper: “Multi-homing: obstacles, opportunities, facilitating factors”