New Study by the IE.F and Roland Berger: Fair Play in the digital arena

Clark Parsons, 16.10.2016

Digital platforms and their business models are conquering industry after industry, region after region, market after market. Without platforms, nothing runs on the Internet any more, while the "old economy" too is increasingly dependent on their capabilities. Commercial users need them as an intermediary to their customers. Private users need them to access information, source content and communicate with each other. Digital platforms bundle and broker virtually all interactions in the Internet economy and connected society. They are powerful drivers of innovation, productivity and growth, with numerous market players and entire economies benefiting from the value they add. Today, six of the ten most valuable companies in the world – and four of the five strongest brands – are digital platforms. Key performance indicators such as growth in revenue and market capitalization show that they have long since overtaken the big industrial groups.

As things stand, however, Europe scarcely participates in this successful model. The "old continent" is thus wasting valuable opportunities to boost Europe's economic growth. In order to change this situation and give European digital providers and start-ups more muscle in this market, experts at the Internet Economy Foundation (IE.F) and Roland Berger have conducted an in-depth analysis of the relevant issues in a study entitled "Fair play in the digital arena – How Europe can set the right framework for platforms". The study led them to sketch a ten-point program for political action.

The complete study is now available for download:

Download the study as a PDF

Click here to find it on the Roland Berger website

Europe has only a marginal share of the platform economy
"European companies currently account for less than 5 percent of the global market value of digital platforms," said Professor Friedbert Pflüger, Chairman of the IE.F. By contrast, platform operators headquartered in the Bay Area alone (Silicon Valley and the surrounding region) together represent more than 50 percent of total global market capitalization. Asian providers too are experiencing rapid growth. "Currently, Europe's role in the platform economy is largely restricted to that of a target market for US-dominated app stores and software foundries," Pflüger noted. "Too little of the value added and the overall macroeconomic effect is actually felt here."

This discrepancy is partly to do with the unequal conditions – such as a pronounced regulatory gap – under which digital start-ups operate around the world. As a result, American platforms currently occupy a dominant competitive position, especially at the pivotal nodes of this industry.

The Internet economy needs fair rules
"To allow Europe too to benefit from the positive macroeconomic effects of digital platforms, we need more competition and fair chances for all market players, be they global corporations or start-ups," said Philipp Leutiger, Partner at Roland Berger. "Young, fast-growing companies in particular need fertile soil in which to take root, grow and flourish. And they also need clear, fair and enforceable rules to ensure that the most innovative providers can establish themselves in the market."

The experts at the IE.F and Roland Berger thus advocate an Internet economy that is open to new players, is strong on innovation and adds substantial value – an Internet economy where fair competition prevails, data is handled in a trustworthy manner and companies act responsibly. Their analysis shows that an independent platform economy can give sustainable impetus to economic growth in Europe. The rule of thumb, they argue, should be: as much market as possible, as many rules as necessary.

"First and foremost, existing competition rules must be enforced more rigorously. That alone would achieve a great deal," said IE.F Chairman Pflüger. "In some particularly sensitive areas, though, these provisions should be expanded and aligned with the requirements that govern the platform economy." Such sensitive areas include platforms that provide a digital infrastructure and are thus of systemic importance. Prime examples include app stores and universal providers that bundle key Internet services to form closed systems. "Integrated platforms and ecosystems serve as a kind of customs gate for all digital business models," Leutiger explained. "That is why monopoly positions are especially dangerous here, as they allow individual providers to make it difficult – or even impossible – for new competitors to gain access."

Ten-point program for more growth and competition
The "ten-point program for a vibrant European platform economy", in which the experts at the IE.F and Roland Berger formulate their recommendations for national and European policy action, therefore spells out the following demands:

  1. Create a genuine Digital Single Market
  2. Eliminate regulatory asymmetry
  3. Adjust the supervision of antitrust abuses
  4. Revise the criteria for company mergers
  5. Improve data portability
  6. Rigorously unbundle vertical services
  7. Ensure platform neutrality
  8. Set up a European digital agency
  9. Form transnational alliances
  10. Fund and promote innovative start-ups

"A strong, competitive and innovative Internet economy in a Digital Single Market can give Europe's ailing economies the momentum they need," said Roland Berger expert Philipp Leutiger. "That's why we must act quickly to put the right conditions in place and ensure we don't get left behind in the international race."