In 2023, four of the five most globally valuable companies are based on a platform business model linked to online business activities, creating digital communities and marketplaces. These allow diverse groups to interact and transact, enabling companies to grow exponentially and acquire significant market shares from established firms.
By 2025, approximately US$60 trillion of the projected total revenue — or 30 per cent of the global economy — could be mediated by digital platforms due to the evolving nature of business ecosystems. These ecosystems are an arrangement between two or more entities to create and share for a common set of customers.
But not every company will succeed by orchestrating ecosystems — most will effectively join existing ones. Companies will need to start developing new capabilities, from systems that link enterprises to platforms and innovative third-party services, to new management skills that can oversee the scale and complexity of ecosystem relationships.
For example, Sound Transit, a public transport provider in the United States, functions as a regional transit authority with their own transportation. Yet they also collaborate with other local transit providers, each with their own vehicles and timetables. Sound Transit needed a service-based platform that could connect all these systems and used an open-source platform.
Another example is European insurer AXA, which identified a need to transition from a traditional insurer to an all-encompassing health partner. Working with Microsoft, AXA built a comprehensive digital health platform. AXA’s broader vision was an inclusive platform, open to integration by third-party services, serving the wider healthcare community.
The European Commission under the Digital Markets Act had designated six ‘gatekeepers’ — Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. Their core platform services include video sharing, search engines, social network services and web browsers.
These gatekeepers are an important nexus in the European Union and have a tendency to adopt a ‘winner-takes-all’ approach and monetise market data for competitive advantage. Examples include auction website eBay or YouTube for video uploads. Companies without their own auction website or uploads sites would either have to join these existing platforms or create their own.
There are two approaches to regulating large tech firms. The first prefers strict regulation of such digital service providers. The second believes stringent regulation can hamper the growth of that country’s digital economy.
Assuming a pre-emptive strategy, Western nations have taken the lead to reign in the economic influence of these platform companies to ensure fair competition.
By 2025, approximately US$60 trillion of
the projected total revenue — or 30 per
cent of the global economy — could be
mediated by digital platforms due to the
evolving nature of business ecosystems
Europe has taken the lead towards pre-emptive regulations with the Digital Markets Act, which came into effect on 2 May 2023. The Act imposes ‘dos’ and ‘don’ts’ on platform companies to ensure fair digital markets. The proposed UK regime will subject small- and medium-sized firms to specific conduct requirements.
In 2022, the Australian Competition and Consumer Commission also proposed codes of conduct like those in the United Kingdom. Several countries in Asia are also pursuing digital reforms for businesses.
In Southeast Asia, a key concern is that ASEAN member countries might mimic EU measures without evaluating their impact or costs. While countries in Southeast Asia evaluate the need for digital regulation, applying an EU-style regulatory strategy will constrain innovation and growth in their expanding digital sectors.
Unlike the European Union, most Asian regulators are still sitting on the fence, but for good reason. Regulations need to be tailored according to local economies, given the implementation costs of rules and their implications.
The dynamic state of digital services in Southeast Asia suggests that competitive dynamics are still changing. Singapore has opted for a balanced approach towards regulation. It prefers to nurture growth and ensure consumers benefit from digital technologies. This has helped position Singapore as an attractive jurisdiction for investment. Similarly, neither Malaysia nor Indonesia have taken strong stances in favour of pre-emptive regulatory regimes.
To understand changing landscapes, Singapore has undertaken market studies, while Malaysia and Thailand conducted similar studies in 2023. Thailand set up a committee in 2017 to prepare legislation for the digital sector and has closely been following the European Commission’s proposals.
In Indonesia, the Indonesian Business Competition Commission is closely monitoring the digital sector with an emphasis on digital payments, marketplaces, and online platform players. Despite maintaining a strong position on antitrust violations, this should not unduly restrict the use and development of digital platforms.
A physical market is a place that enables buyers and sellers to come together in person to exchange goods and services. In contrast, digital markets can take many forms, such as online retailers, e-commerce platform or online auction sites.
A new methodology to determine geographic markets in the digital economy is needed, given the increasingly cross-border nature of digital platforms. There is also the possibility of changing the method of calculating market share based on data flow, rather than just turnover.
There is a Europe–Asia divide on how digital platforms should be regulated. Southeast Asia could adopt a midpoint strategy by taking a holistic approach to regulating digital platforms. This would involve collaboration among institutional regulators for antitrust, consumer protection and data privacy challenges. This collaborative approach could also include a self-referencing code of conduct among platform companies to ensure room for emerging companies to grow and not be crowded out.
Faizal Bin Yahya is Senior Research Fellow in the Institute of Policy Studies at the Lee Kuan Yew School of Public Policy, National University of Singapore.
Source: East Asia Forum
