The Impact of Global Digital Companies on Consumers, Firms and Governments

“The opening up of new markets and the organizational development illustrate the same process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about the modern economic system“. It is with these words that Joseph Schumpeter (1942), one of the great economists of the 20th century, recognizes the intrinsically disruptive nature of innovation. This disruptive innovation is what is being brough about by “global digital platforms” 80 years after Schumpeter’s remarks.

This study suggests a taxonomy of what global digital platforms are about. Obviously, to each category corresponds a different impact on industries, on citizens and different possible regulations and policies. It is however undeniable that they are already bringing forward huge changes:

1. Google/Alphabet and Facebook/META have profoundly modified the whole advertising business by imposing a more personalized and efficient paradigm.
2. Facebook (and WeChat in China) has unleashed an ongoing creative destruction in the world of editorial content, whereas Netflix and Spotify are consolidating a totally different business model which has radically transformed the entertainment industries.
3. The videogame industry itself has become “social” and proposed a different semantic to create communities and ecosystems whose economic value exceeds the ones of music and movie combined (as the 70 billion USD Microsoft’s recent acquisition of Activision Blizzard reminds).
4. Amazon has highlighted how, especially since the great Pandemic, both producers and the distribution chain need to be rethought and how there’s a need to rethink the chain of value production.
5. Alibaba and, again, Amazon are increasing the value of hundreds of SMEs that through them have now gained access to the global market.
6. WeChat (TENCENT) and Alibaba (with Alipay) have explored in China (before other countries) the strength of pervasive mobile banking instruments.
7. Airbnb, Expedia, Booking.com but also TripAdvisor have radically changed the selling strategies of tourism and hospitality sector.
8. Not of lesser importance are those more business rather than “social” oriented models that have made two young firms like Apple and Microsoft to surpass a market capitalization of 2 trillion USD and to be most valuable companies of the world.
9. Even companies such as Tesla whose value cannot be understood applying the metrics of the sectors (car making) which they technically belong to, can become platforms capable of changing entire industries by re-founding them on great capacities to aggregate and analyze data in real time.

There’s more: the big innovation of digital platforms (and more in general, of the internet) is that they are connecting different industrial sectors, blurring the lines between them. Starting from big data and exploiting them in creative ways, Google is now entering in the automobile industry; Facebook is now designing new payment systems, Amazon is going up the production chain and creating its own contents (with Amazon Studios and their streaming platform, Prime video, Twitch for sharing videogames); Microsoft is offering videocalls (Microsoft Teams) and the Cloud is nowadays an industry on its own.

This entire innovation tsunami is indeed enabling the profound transformation of the value chain of big industrial sectors, and this even creates a real intellectual problem for traditional regulation instruments (Ezrachi & Stucke, 2018).

This analysis will explore how digital platforms are providing the impetus to bring growth and access to the global market for SMEs; how they’re encouraging the reorganization of big companies (for example if the field of distribution) and the restructuring of some key sectors; finally in what measure digital platforms can become a vector for local development.

We shall also identify the elements affecting competitiveness in different sectors by examining the impact of different variables: higher entry thresholds; propagation “networks effects” to other sectors; protection of confidentiality on relevant data for the development of new products that are shared among platforms, the possible spill-over of innovation of platforms on start-ups and companies that need a dimensional upgrade.

All of this in a context where companies are increasingly investing in the digitalization of their production system in order to remain competitive in the digital world. A circumstance further exacerbated by the Covid19 pandemic that pushed companies towards several strategic dilemmas which have not been yet solved.

V&V REPORT ON DIGITAL INFRASTRUCTURES

PPT – REPORT PRESENTATION VV

Vision & Value presented this report at Luiss Guido Carli campus on November 29th, 2022.

PROGRAM Presentazione Rapporto V&V LUISS 29.11

LINK TO THE PRESENTATION