Platform economy: Platforms’ business model

13 Marzec 2020

Platform work is a form of employment that uses an online platform to enable organisations or individuals to access other organisations or individuals to solve problems or to provide services in exchange for payment. At the same time, it is a business model applied by organisations to match supply and demand for paid labour through an online platform or app.

Diversity in platform business models: A combination of various elements

With the growth of the platform economy, an increasing heterogeneity within this ‘new sector’ emerges. This not only refers to the types of platform work, but also to the business model followed by the platforms.

The business model of platforms refers to their main characteristics, including the mechanisms they apply and the services provided. Aspects to be considered in this context refer, for example, to

Type of tasks mediated through the platform : While a few years ago tasks mediated through labour platforms mainly related to online micro tasks with low skill requirements, the portfolio of tasks offered through platforms is continuously growing. This refers to the complexity of tasks and skills levels required (with newer developments regarding demand for higher skilled and more complex tasks), scale of tasks, format of service provision (notably a rapid growth in transport and household services) and sectors/occupations concerned. There is also some anecdotal evidence that services offers of traditional businesses are connected to platforms (e.g. assembly services related to IKEA products).

Selection mechanism: While the strong reliance on an algorithmic matching process is one of the main characteristics of the platform economy, this can be differently deployed in practice. Matching not necessarily needs to be fully automated through an algorithm. Rather, it can also take place through an offer made by a client or a worker and a response by the respective 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 in between the organisational forms of market and hierarchy. However, in practice considerable differences are observed. While platform-determined platform work resembles more a hierarchical relationship between the platform and the worker in terms of autonomy, control and instructions related to work organisation, online contests follows more the market approach, with a high degree of discretion of the worker. Following Eurofound’s classification, about 30% of platforms active in Europe are organising platform-determined work (that is, with assumed high degree of intervention of the platforms). The dominance of this type of platform work in public and policy debate can be seen not only as an indicator for the concerns related to this type of platform work, but also as a sign of their growth.

Figure: Hierarchy-to-market dichotomy by analysed type of platform work


Source: Eurofound (2019).

Rating mechanisms, reward and monitoring systems and gamification approaches: There is a relationship between ratings and workers’ access to (better paid) tasks. This results in some lock-in effect for the workers as for the time being such ratings or scores are platform specific and hardly 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/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 induce greater 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. Such a business model can be appealing to certain groups of workers, notably young, ambitious, higher skilled ones.

Pricing model: Platforms tend to charge users for their matching service provision. Some platforms collect the fees from the workers, others from the clients. Differences also exist whether users are charged for registration, or for successful service delivery. There are also platforms which do not charge matching fees but are financed through advertisements.

Additional services provided by the platform to workers (e.g. training, insurance) or clients (e.g. assistance in drafting the offer): While most platforms exclusively focus their activity on matching or managing the tasks, a few are starting to offer additional services. 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 platform(s) to join.

Data collection and use: The digital element involved in the platform economy provides platforms with the opportunity to collect a wide range of data from workers and clients affiliated to the platform. These data could be used to improve the existing business model, e.g. in terms of capitalising on workers’ and clients’ data by analysing their behaviour when using the platform, deriving assumptions of user preferences and adjusting matching mechanisms or services provided to these anticipated expectations. From a different perspective, gathered data could be used for diversifying or expanding the business model. For example, data from workers or clients could be sold as a commodity to interested parties (that could use them, for example, for marketing purposes). Furthermore, data collected by the worker in the framework of the task conduction could be commercially used by the platform for other purposes (e.g. 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 in the framework of platform-determined transport services could feed into the development of driverless vehicles). While the technological capacities and increasing cost efficiency of gathering, storing and analysing data and the commercial opportunities of using them are continuously growing, data protection regulations and ethical considerations are of increasing concern in recent years and put some limitations of the theoretical possibilities of such data exploitation.

Contractual relationship with workers: As across Europe for the time being the employment status of platform workers is not finally clarified, platforms apply different approaches within the overall legal frameworks. While the majority of platforms consider their affiliated workers as self-employed or freelancers, some offer them employment contracts according to labour law. Eurofound does not have strong evidence what exactly determines platforms’ choice for the employment status of their affiliated workers, but assumes that it is a combination of internal/business related aspects (e.g. profits, reputation/attracting workers and clients, organisational structure, size, age) and external aspects (e.g. market position of the platform and competitive pressure, legal framework, power of trade unions, media articles etc.).

Ownership/governance structure: Most of the longer-standing and better established labour platforms in Europe have non-European (e.g. US) ownership and are profit oriented. The vast majority of European platforms are of much smaller scale and scope, often targeting a local market only. Nevertheless, other ownership models are emerging. A few platforms across Europe are run as cooperatives, with the affiliated workers being their members with stakes in the platform decisions and governance. Another new development are employer-owned platforms. These are internal to an individual organisation, used as a means of work organisation within the firm, and not accessible beyond their own staff. In this case, ‘clients’ are also part of the organisation, such as line managers responsible for task allocation. Also the emergence of publicly owned platforms should be mentioned.

Finally, it should be noted that the business model of platforms are not necessarily stable. At least some platforms are changing their business models over time, to adjust to internal and external requirements. This is also related to the fact that notably indigenous platforms tend to be start-ups or young companies which are often observed to be agile in adapting their business models to market needs, developments and ‘internal lessons learned’.

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