Current focus theme of the Platform Observatory: multihoming
Multihoming is one of the focus themes for the expert group and support study team for the second half of 2020.
Multi-homing refers to a situation in which users use several competing platforms in parallel. This applies to all sides of the market: businesses using different platforms to sell their goods and services; customers switching between different platforms to get what they need. It is expected that 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, decrease the economic power of large platforms, offer more choices to business users and their customers. It could lower barriers to entry for emerging new platforms and foster innovation.
Multi-homing is not quite simple or straightforward due to a variety of interconnected reasons. The business model of online platforms is built on exploiting the network effects. The more users join a platform, the more useful is a platform for them which, in turn, generates revenues and profits to the platform. Therefore, online platforms tend to develop into relatively closed ecosystems. Although online platforms rarely forbid multi-homing or use clearly anti-competitive clauses in their terms and conditions, some of their actions may in effect inhibit multihoming. These include incentives that reward the most active and loyal users, recommendation systems, bundling of services, financial initiatives, and other means.
Once an existing platform reaches a certain size, new market entrants will always be at a disadvantage: in absence of multi-homing they will find it difficult to reach the critical mass of users, which makes them less attractive to other potential users, which makes such users less likely to join the new platform. This decreases the number of potential competitors or companies that could be used to multi-home. Conversely, platforms also tend to specialise within specific markets so that to differentiate themselves and develop their own user base. This means that a range of platforms may co-exist and users do multi-home, however they would use different platforms for different purposes (reaching different clients, buying different services). Further, if a specific platform reaches a dominant position in a specific market, businesses and customers may feel that they have no alternative but to join the platform, which, in effect, decreases multihoming.
From the perspective of business users and/or their customers, using one specific platform to address a specific need is often a default choice. The key reasons include being accustomed to a specific user interface, convenience, inertia. Further, the costs of switching may also be significant and include the loss of data, loss of ratings and reviews in the platform’s reputation system, expenses on building a network of customers, users, peers.
Currently, the Platform Observatory explores a number of questions that include:
- The extent of multihoming among businesses across various types of online platforms.
- The main obstacles to multi-homing, including any practices that are intended or have an effect of decreasing or preventing multihoming, in any way.
- Options for fostering multihoming, including the role (if any) for the public sector.
It is expected that the study will be concluded and published on the Platform Observatory website in February/ March 2021.