Platform business model (Driving force)

The research project ‘Future scenarios of platform work’ explores the economic, labour market and societal impacts of two types of platform work – platform-determined routine work and worker-initiated moderately skilled platform work – by 2030. The project identified eight key driving forces deemed to substantially influence the development of these two types of platform work. These driving forces and associated hypotheses were used to derive potential platform work scenarios, and, from these, pointers were developed on what policy could do to make a desirable future happen and to avoid an undesirable one. This is the definition of one of the eight key driving forces identified.

Platform work is the matching of supply and demand for paid labour through an online platform. How this is done, however, varies considerably across platforms. Accordingly, a platform’s business model refers to its main characteristics, including the mechanisms it deploys and the services provided.

Aspects to be considered in this context refer, for example:

  • type of tasks mediated through the platform (such as type of service provided, scale, format of service provision and skill level required)
  • selection mechanism (that is, whether task assignment is decided by the platform, client or worker; whether it is fully automated or with human input)
  • pricing model
  • degree of intervention by the platform (matching services or managing how tasks are done)
  • rating mechanisms, reward and monitoring systems, and gamification approaches
  • additional services provided by the platform to workers (such as training) or clients (such as assistance in drafting what is to be offered)
  • what data are gathered and how they are used

Trends

In general, labour platforms are dynamically developing business models. This is widely attributed to the fact they are young enterprises and to the agility of such enterprises in adapting their business models to market needs, developments and ‘internal lessons learned’. This is likely to be even more so the case in a situation where not only the business, but the whole environment around it is new, as is the case for the platform economy.

Nevertheless, there is a heterogeneity among platforms: while some are constantly changing their business models, others remain relatively stable. For the time being, there is no strong evidence about which strategy works better in terms of platforms’ sustainability and growth; this probably depends on the platform’s competitive position and environment.

Type of tasks mediated through the platform

While a few years ago the tasks mediated through labour platforms were mainly online micro-tasks with low skill requirements, the portfolio of tasks offered through platforms is continuously growing. The complexity of tasks and hence the skills levels required are expanding, as is the scale of tasks, the format of service provision (notably a rapid growth in transport and household services) and the sectors and occupations concerned.

There is also some anecdotal evidence that service offers of traditional businesses are connected to platforms (for example, assembly services related to IKEA products). Depending on whether these traditional businesses are creating their own platforms (resulting in competition within the platform economy) or use existing platforms (resulting in a diversification of their client stock), such developments will have different effects on the platforms’ business model.

Selection mechanism

While the reliance on an algorithmic process to match workers and clients is one of the main characteristics of the platform economy, there is increasing diversity in how this is deployed in practice. Matching does not necessarily need to be fully automated through an algorithm. It can also take place through an offer made by a client or a worker and a response by the other party, or through a contest, facilitated by the technology. In parallel, selection mechanisms differ according to who decides upon task allocation: the platform, the client or the worker.

Without any strong evidence available, it appears that contest-based platforms are less widespread than offer-based ones, and that mechanisms in which the platforms or clients decide upon task allocation are mostly applied.

Degree of intervention of the platform

Platforms are generally described as a business model that sits between the organisational forms of market and hierarchy. However, in practice considerable differences are observed. On-location platform-determined routine work resembles a hierarchical relationship between the platform and the worker in terms of autonomy, control and instructions related to work organisation. On-location worker-initiated moderately skilled platform work follows the market approach, where the worker has a high degree of discretion.

Following Eurofound’s classification, about 40% of European platform workers are affiliated to platform-determined platform work (that is, with an assumed high degree of intervention by the platforms). The dominance of this type of platform work in public and policy debate can be seen not only as an indicator of the concerns related to this type of platform work, but also as a sign of their growth.

Rating mechanisms, reward and monitoring systems, and gamification approaches

Rating mechanisms are an important part of the business model of the platform economy. A worker’s overall ratings level affects their access to (better-paid) tasks. This has a lock-in effect on workers as, at present, such ratings or scores are platform-specific and not portable to other platforms. Due to the relevance of networking and scaling effects for economic success in the platform economy, platforms are eager to deploy a rating or reward system that is attractive for workers while at the same time makes them ‘addicted’ to that specific platform.

Some platforms are applying gamification approaches to increase motivation and engagement among platform workers in terms of making them compete with themselves and others. Workers’ performance is monitored through algorithms and ratings (with algorithms often determining the ratings), incentivising them to achieve more and improve their position. This type of business model can be quite appealing to certain groups of workers, notably young, ambitious and higher skilled ones. Accordingly, this might be more relevant for the platform-determined type.

Pricing system

All platforms generate revenue by charging fees. Differences exist in terms of who is charged (worker, client or both) and on what basis (at registration of the profile, at the point a task is launched, or at the point a task is completed) fees are collected. The pricing system is not always transparent to the users.

Some anecdotal evidence suggests that workers (and clients) prefer platforms without registration fees, which could be attributed to the relative unpredictability of income earned through platforms, hence an unclear return of investment from such initial expenses.

Additional services provided by the platform

While most platforms exclusively focus their activity on matching or managing the tasks, a few offer additional services. These can be either targeted at clients (for example, recommendations on how to formulate a request, review of draft requests and pre-screening of offers) or workers (for example, recommendations on how to secure tasks and satisfy clients and training for occupational or transversal skills). It can be assumed that, in the longer run, the provision of additional services will act as an important decision criterion for specific groups of clients and workers when considering which platforms to join.

Data gathered and used

The digital dimension of the platform economy provides platforms with the opportunity to collect a wide range of data from workers and clients affiliated to the platform. The existing business model might be improved, for example, by using worker and client data to analyse their behaviour when using the platform and adjusting matching mechanisms or services based on this information.

From a different perspective, data could be used to diversify or expand the business model. For example, worker and client data could be sold as a commodity to interested parties (that could use them for marketing purposes). Furthermore, data collected by the worker in carrying out the task could be used by the platform for commercial purposes: for example, information about household characteristics or equipment in the case of worker-initiated platform work might be valuable for manufacturers of consumer goods; or geo data collected from platform-determined transport services could feed into the development of driverless vehicles.

While the technological capacity to gather, store and analyse data and the cost-efficiency of doing so are growing all the time, as are the commercial opportunities for using this data, data protection regulations and ethical considerations are also of increasing concern in recent years and put some limitations on the theoretical possibilities of such data exploitation.

Hypotheses

The project applied a foresight methodology to derive possible future scenarios. As part of this, at least two realistic and mutually exclusive hypotheses were drafted for each of the key drivers to depict their potential future development.

Three hypotheses were identified for this driver. 

1. Market diversification and expansion

Existing platforms continuously develop their business models. In addition, new platforms are entering the market and applying the platform business model to new business cases (for example, parcel delivery for the platform-determined type and new types of household tasks not yet covered in the worker-initiated type) and new services. This results in an overall diversification of tasks or ways of managing the same task, according to platform and growth of the platform economy.

2. Market saturation and consolidation

The platform economy has reached a level of stability where it cannot attract more demand from clients and workers but does not crowd out providers in the traditional economy. All application and deployment options are exploited, and further diversification is not possible. The business model (that is, its appeal to workers and clients) is decisive for the survival and growth of existing platforms, and the market access of new platforms.

3. Full task specialisation or full diversification of platforms

Platforms facilitating worker-initiated platform work develop in either of two extremes: they mediate a specific task only (for example, specialisation in cleaning services) or they mediate the full range of household services. Similarly, platforms facilitating platform-determined platform work (which currently are very specialised) can apply more diversified business models by offering a broader range of services. There is no mix of business models.

Information sources

  • Eurofound (2018a), Employment and working conditions of selected types of platform work, Publications Office of the European Union, Luxembourg.
  • Eurofound (2018b), Platform work: Types and implications for work and employment – Literature review, Publications Office of the European Union, Luxembourg.
  • Eurofound (2019a), Mapping the contours of the platform economy, Eurofound, Dublin.
  • Eurofound (2019b), Platform work: Maximising the potential while safeguarding standards?, Publications Office of the European Union, Luxembourg.
  • Eurofound (undated), Publication database keyword search ‘platform characteristics’, web repository on the platform economy, Dublin.
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