Understanding the Online Platform Economy

Understanding the Online Platform Economy

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Understanding the Online Platform Economy

One of the major changes in the economy over the past two decades has been the rise of online platforms that facilitate peer-to-peer transactions. Instead of paying the owner of a parking garage to park your car or a hotel chain for a night’s stay, with these platforms, consumers are renting parking spaces and nightly accommodations from their peers.

The Platform Economy

Online platforms have sprung up to match buyers and sellers in a wide variety of industries. These days there are platforms to match buyers and sellers of work tools, home appliances, house cleaning, car rides, old clothing and a host of other things.

These platforms have made it easier for people to engage in part-time, small-scale, entrepreneurial activity by connecting workers to people needing work done, sellers to buyers of goods, and asset owners to people needing to rent them, removing intermediaries from the process. Some economists attribute the recent rise in non-employer businesses to these platforms.

While participation in the online platform economy is not yet widespread, it is growing rapidly. A survey by consulting firm PWC indicates that only seven percent of the U.S. population are “providers in the sharing economy.” Another study, this one by the JPMorganChase Institute, looked at the bank’s checking account customers and found that only one percent of adults made money from online platforms in any given month, and four percent made money at some point over the previous three years. Yet those numbers were more than ten times their rates only three years earlier.

The online platform economy is composed of three distinct types of technology-mediated platforms: (1) labor platforms, which provide methods for people to find part-time work (think Uber or TaskRabbit), (2) goods platforms, which provide methods for people to sell goods to other people, (think Amazon or Craigslist) and (3) asset platforms, which provide methods for people to make more efficient use of their assets (think Airbnb or Turo).

The usage of the three types of platforms varies significantly. A survey by the Pew Research Center found that only one percent of Americans used home-sharing platforms to provide access to a dwelling, but 8 percent earned money in the previous 12 months from an online platform that helps them find work, and 18 percent earned money by selling something online. (In fact, more Americans used online platforms to sell used goods – 14 percent – than anything else.) The much higher penetration of platforms that facilitate sales of goods online makes sense since two of the biggest platforms for online sale of goods, eBay and Craigslist, were founded in 1995, while most of the platforms for selling access to capital and labor date only from the mid-to-late 2000s.

A few demographic patterns exist across all three types of online platforms activities. Residents of the Pacific and Mountain states are much more likely than those in other parts of the country to participate in the online platform economy, and those in New England are least likely to participate. The use of these platforms is more common in the service sector than in other industries. Young people are more likely to use online platforms than older generations. And people of all ages are much more likely to use these platforms as a source of extra income than as a primary way to make money.

Flexibility, not earning potential, is the main driver of the decision to become a provider on an online platform. The Pew Research Center survey shows that 45 percent of people who earn money through online platforms chose to offer goods, labor or capital through these platforms because they “need to control their own schedule” – a much higher fraction than provide any other motivation.

Interestingly, this motivation is similar to what surveys show is the reason people they choose self-employment. That’s the reason why some observers believe that platforms are behind the increase in part-time, small-scale entrepreneurial activity that we have seen in recent years.

[“Source-smallbiztrends”]