Market size of global platform economy surpasses $7 trillion mark

10 December 2018 Consultancy.org

The global platform economy, which revolves for a large part around the seven ‘super platforms’ of Apple, Amazon, Microsoft, Google, Facebook, Alibaba and Tencent, has grown to an industry value of over $7 trillion. 

Platforms (like Uber and AirBnB) provide the digital infrastructure for consumers and suppliers to coordinate their activities more effectively on a large scale. In a study released in 2016, researchers Peter Evans and Annabelle Gawer took on the challenge of calculating the market size for the increasingly important platform economy. They arrived at a mark of around $4.3 trillion globally, though they highlighted the difficulty of quantifying the market’s value due to a lack of reliable data, hazy definitions of scope, the wide variety of platform types, and the availability of many ‘free’ platform services. 

Over the past two years, the growth of platforms like Amazon has continued to grow at a remarkable pace, turning Jeff Bezos and his platform peers into the global super-rich. According to a new study from KPMG, this growth has been seen across the entire platform economy landscape. In their sizing, KPMG has pegged the global platform economy to have a value of $7.18 trillion, up substantially from Evans and Gawer’s estimate two years earlier. 

For the purposes of their analysis, the report authors looked at the combined value of the 242 largest public and private platform companies – all of which had a public market capitalization or private valuation higher than $100 million. The firm categorized the 242 companies based on valuation: Super Platform +$250,000 million; Elite Unicorn +$25,000 million; Unicorn+ +$1,000 million; and Scale-up >$100 million. 

Market size of the global platform economy

KPMG found that there are already 187 platforms worth more than $1 billion globally. The report further uncovered a high concentration of value around the Super Platforms worth over $250 billion, namely US-based Apple, Amazon, Microsoft, Google, Facebook and China-based Alibaba and Tencent.

Together these firms represent $4.92, or a staggering 69% of the total value of the platform economy. Interestingly, two-thirds of the 187 platform companies valued at >$1 billion are privately owned.

US and China dominate, Europe lags

Today, the platform economy is dominated by American and Chinese firms. 46% of the +$1 billion platforms are based in the US, while 35% are based in Asia (mostly in China). 18% are based in the EU, with a further 10% in Latin America. 

The division of platform market value is however, quite stark, with US firms accounting for 72%, 25% for China, and 2% for EU firms. So while the EU already has fewer big platform companies, the ones it does have hold substantially less value than US firms.

There are a number of reasons for the EU’s underperformance. Despite efforts like the Digital Single Markets strategy, the European market remains very fragmented in terms of language, consumer preference, and rules and regulations compared to uniform markets like the US and China. This makes it more difficult and expensive to achieve scale in Europe than elsewhere.

The US and Chinese tech scene also have benefitted from other country-specific advantages which Europe lacks. For example, the US technology sector has long been linked to beneficial US military developments – like ARPANET, the Department of Defense’s internet progenitor. Meanwhile China’s government has vigorously supported platforms like Alibaba to help develop trust and infrastructure in the Chinese market.

Also, while the EU has good funding for numerous startups, it lack the super financing that can fuel the growth of a few very large platforms. Specifically, the funding infrastructure for the scale-up phase after initial investment rounds requires a revamp, according to the report. Financing in the scale-up period is currently impeded by the risk averse nature of European investment culture – which tends to balk at long-term, risky bets on disruptive tech; an underdeveloped understanding of how digital tech is restructuring the economy; and the lower returns of EU firms due to higher scaling costs in fragmented Europe. 

Distribution of platform companies by region

With good comes bad

The rise of platforms has brought with it a raft of positive and negative effects, according to the report. On the good side, the platform economy has brought more choice and service to consumers and a flexible complementary income to workers. On the negative scale, platforms have ushered in extensive personal data extraction, privacy breaches, and internet addiction issues to consumers; winner-take-all monopolies for the big companies and income insecurity for contracted, pay-per-piece employees; and decreased social cohesion from social media echo chambers and fake news. 

In response, the report recommends that governments take action to establish ownership rights over data, enact legal and regulatory updates to balance interests and address proportionality, encourage platform neutrality regimes to avoid abuse of power, and improve platforms’ transparency and auditability.

Looking ahead, the authors highlight that the platform economy is only going to continue its rapid growth trajectory, and they’re not alone in that forecast. Research from WEF shows that over 80% of executives think that platforms are ‘indisputably the leading form of organizing modern digital markets’ and that they will be the glue that holds together large groups of users in the increasingly digital market. Since they’ll be sticking around, it’ll be increasingly important to amplify platforms’ positive effects and dampen the negative ones.

* Platforms which are part of incumbent companies (such as Healthsuite, part of Philips) have been excluded from the research due to limited availability of reliable financial data.

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