Measuring the platform economy
By Alena Sokolyanskaya, Lucie Lechardoy, Francisco Lupiáñez-Villanueva
Over the past decade, online platforms have established their presence as important market players, connecting economic actors, boosting efficiency, spurring innovation and new business models. They play an important role in many industries, allowing buyers and sellers of goods and services to trade and communicate with each other. At the same time, they also create network effects, and raise new issues related to fairness, transparency, and market distortions.
Our approach proposes to divide the measurement of the online platform economy into three major areas that cover this phenomenon: economic significance, the power over users, and consequences of the power. As platforms are defined as two-sided or multi-sided markets, depending on the number of distinct user groups, we have proceeded to measure the platforms’ economy by estimating its size from the sides of different agents engaged, namely, online platforms (as an intermediary service and facilitator of interaction between business users and end users), business users, and end users that can be either businesses or individuals.
Besides defining the key dimensions for measurements, we have identified the most important online platforms that can serve as a proxy for measuring the platform economy and monitor key qualitative characteristics. Our selection includes the 50 online platforms most used across EU Member States based on their traffic share weighed by the number of internet users per country. Below, we present some highlights and examples of our findings on each dimension. For more comprehensive findings on our measurement of the online platform economy, please click here.
Dimension 1. Economic significance
Current data shows an increasing engagement of enterprises into the online economy. In most European countries, the volume of electronic sales transactions is increasing as a percentage of total turnover. Although more enterprises in the EU are currently selling via their own website/app, the importance and usage of online platforms is growing.
E-sales via e-commerce and websales in 2019: turnover in million euros
According to Eurostat, in 2019 EU enterprises generated 18% of their total turnover from e-commerce, and 6% of the total turnover via websites or apps.
According to recent estimations, e-commerce sales in Europe grew to 621 billion euros in 2019, with most of the online turnover generated in Western Europe. Germany and France have the largest absolute turnover generated via marketplaces.
In 2020 we can assume substantial shifts in the importance of e-commerce for the enterprises, as the closure of physical shops due to COVID-19 has boosted the services of online marketplaces.
Dimension 2. Power over users
As platforms generate value for businesses by providing them with access to demand for their products, businesses can become dependent on the platforms to different extents.
For example, the digital advertising market has significantly increased in importance over the recent years and is now one of the key parts of advertising budgets of the enterprises.
Share of enterprises paying to advertise on the internet, % (2018)
Ad spending in the digital advertising market in Europe is forecasted to exceed EUR 60 billion in 2020, with search remaining the largest online advertising category in terms of revenue, followed by social and display advertising.
In 2018, one in four EU enterprises (26%) advertised on the internet. In northern countries, such as Sweden and Denmark, over 44% of enterprises paid to advertise online.
Dimension 3. Consequences of the power
As platforms become big data and content holders, their power over businesses and consumers may also increase. Online platforms can determine the rules, conditions and access to the market and thus become gatekeepers. Businesses become increasingly dependent on online platforms as a source of revenue, which may also bring some specific challenges.
Experience with online platforms: share of enterprises, % (PPMI survey, 2019)
The most frequently reported causes of problems are technical problems, sudden changes to pricing and lack of transparency. Lack of transparency and offensive pricing strategies of online platforms may affect competition and the predictability of the market for the agents involved.
In order to tackle such issues, the EU Regulation on platform-to-business relations (P2B Regulation) was adopted in July 2019, establishing the first-ever set of rules to create a fair, transparent and predictable business environment for smaller businesses and traders on online platforms. The P2B Regulation has entered into force on 12 July 2020.