C for Community — Why “customer-obsessed” techs should start acting for a broader range of stakeholders

Intro

When talking about consumer innovation, chances are you’re thinking about companies like Apple, Amazon. They have proven that “starting with the customer experience and work backward with the technology” is the right way to build a product and a brand. Their respective phenomenal platforms thrive on the concept of “the network effects”.

network effects occur when a company’s product or service becomes more valuable as usage increases

The correlation of network effects and customer experience has tipped these companies toward aggregating more resources (participants, information, products & services) for their platforms. As the result, a large pile of stakeholders (developers, merchants, companies) now become increasingly dependent on these networks to do businesses.

being “customer-obsessed” alone may not be enough when your role is a platform’s gatekeeper.

Tactics that have been successfully used to grow the platform and benefit consumers now seems less authentic as it shows these companies being inconsiderate to others and raises concerns for abusing of monopoly power.

Tactic I: Disintermediation — A walled garden game

Disintermediation is the risk when network participants connect directly outside. Once transaction is proved to be done safely and successfully elsewhere, there is little motivation to return to the platform. This weakens the network effects. And platforms that captures on transactions value (i.e charging commission fee) don’t want disintermediation.

Apple avoids this risk in its App Store by not permitting developers to communicate with iOS users about purchases at a lower price outside the App Store, or by alternative subscription and payment methods.

The platform offerings would only work if they enhanced value for both sides.

Apple charges $99 annual fee to developers and $299 for developers building enterprise apps for access to its development tools and apps store distribution, which lefts not so many areas for the 30% commission fee to cover.

When App Store first launched in 2008, the 30% commission fee seems like a bargain compared to distributing software through …. a CD-ROM (I hope you remember what it is 🙈). But 12 years has passed! Software has moved beyond perpetual licensing into SaaS. And we now have Stripe and a more advanced and security web technology that make marketing, distribution, and support way easier and at a fraction of what Apple is charging.

Apple solution seems expensive and not worth wide as Apple has also underestimated the dynamic from the consumer aspect. App Store is now flooded with apps. Despite getting overhauled in iOS 11 (2017) with “Today” tab as a “daily destination all about games, apps and app culture”, consumers still not favorable the App Store for app discovery.

“Only one in three consumers say that more traditional methods of app discovery — app store recommendations, searching in an app store, display ads in the web and social media, ads on television — are helpful” — Business of Apps

Tactic II: Retention — Want to leave the platform? Not so fast!

This is frequently associated with social media. Their networks effects feed on user's retention, using users’ data to create a targeted experience for individuals to spend more time on the platform.

“As a product manager at Facebook, your only job is to get an extra minute … They don’t ask where it’s coming from. They can monetize a minute of activity at a certain rate. So, the only metric is getting another minute.” — Former Facebook employee.

Facebook has a significant advantage in users data collection through its own Facebook platform and its family of apps: WhatsApp and Instagram. On 6th January 2021, more than one infuriating event happened. WhatsApp will force its users to share a significant amount of data to Facebook, in the platform’s latest attempt to gain control over users' information (unless you’re in Europe — too much for being an over-regulated continent, I guess 💁‍).

If you’ve watched Netflix “The Social Dilemma” (highly recommended! 🍿), you would be familiar with the term “attention economy”. Users data gathered by social media platforms is being used to feed algorithms promoting content that “sparks outrage, hate, and amplifies biases”. Many blames social media’s inaction for the turmoil in Washington DC recently, and even before that, during the presidential election. Choosing not to moderate contents raises concerns over the true motive behinds social media policy.

The needs of new concept to govern big techs

Consumer tech companies are often benchmarked against 1) customer satisfaction and 2) antitrust laws. But the rise of tech platforms and their concept of accumulating network effects has challenged both concepts. Question is how authorities and average consumers can continue to evaluate policies from these companies.

Customer satisfaction — We don’t think it’s THAT hard to be nice to everyone

Brand authenticity is now an integral part of customer’s experience. For many years, consumers have trusted the brands they knew. The like of Apple, Amazon, Facebook (yes, I’m serious) had no problem convincing that consumers are going to love what these companies are launching. But consumers, now being exposed to an unprecedented level of information, has become more skeptical and paid closer attention to what their brands are doing behind the scenes.

“90% of consumers say authenticity is important when deciding which brands they like and support” — Stackla

As consumers are being more purpose-driven, so should brand. Consumer’s call on climate change has influenced enterprises to go carbon neutral. And in this platform era, being good for consumers alone is not enough. Consumers behavior change suggests corporates to act more like a responsible citizen and be good to other stakeholders (developers, society, merchants, …).

Being authentic and inclusive to stakeholders should be something baked into the company’s decision-making process rather than a PR stunt to preserve public image. You may not like Facebook but what is the justification for Apple censoring them telling customers about App Store 30% commission fee? Fear of customers being informed!

From Antitrust Laws to Digital Service Acts — With great power comes great responsibility

The concept of antitrust laws to govern companies accumulating monopoly powers relies on the definition of market and market share, and proof of consumer harm. For the later, the availability of social media platform, ironically, is sometimes a much more powerful way than regulations to express concerns to tech policies. (hint: cancel culture).

For the former, it seems like defining the market becomes big tech main rebuttal against regulators’ concerns:

• Facebook argue its market share as a percentage of total user time spent on the internet.
• Amazon argues it competes retails in general, not online marketplace.

Per such argument, these companies don’t possess the kind of monopoly power and yet a rocketing number of businesses and consumers rely on them for distribution and consumption of goods & services, accelerating by the pandemic.

Europe is not over-regulated; its tech regulation is just ahead of tech innovation in the continent.

On December 2020, the EU proposed the Digital Service Act package. The proposal seeks to govern 10,000 platforms operating in Europe, defined as “gatekeeper”, a definition that is based on being in an intermediation position connecting users and businesses in the platform, rather than being based on holding a certain market share. The act straight out prohibits current practices such as prevent linking to businesses outside their platforms (Apple) or treat services and products offered by the gatekeeper more favorably (Amazon).

Conclusion

There is no doubt that consumers have benefited tremendously from the platform business model. However, as pointed out, customers satisfaction alone is no longer a relevant metric to measure big tech policies. The new customer’s expectation for corporates to be authentic and inclusive as well as a new ray of regulations seeking to redefine platform owner role in the economy will shift these companies’ policies in the coming years. We’re not halting power of big consumer tech; we’re just asking them to be fairer to every stakeholder on their platforms.

Sources

The examples analyzed in this paper are presented in the US House Judiciary Committee’s investigation report of digital markets competition (October 2020)

Network Effects Bible (NFX, December 2018)

Network Effects, Big Data, and Antitrust Issues For Big Tech (conversableeconomis, February 2018)

The Dynamics of Network Effects (a16z, December 2018)

Why Some Platforms Thrive and Others Don’t (HBR, January 2019)

Market Definition and Tech Monopolies (Benedict Evans, October 2020)