Infrastructures are being disrupted in a more subtle way, as the market structure for the provision of the infrastructure evolves into multi-sided markets intermediated by a digital platform. Traditional infrastructure managers are not substituted, but their services are being commoditized as they are aggregated and intermediated by digital platforms. Platforms have the ambition to monopolize the relationship with the customer and end up coordinating the provision of services by the underlying traditional players. Thus, infrastructures are platformed or at least in danger of being platformed.

This is the most relevant - but, at the same time, the most elusive - effect of digitalization in the traditional network industries. Traditional players will not be substituted; rather, they will still manage the underlying infrastructures and services. But their role in the market will be transformed, their power reduced, and their revenue diminished.

Platforms are transforming the traditional network industries into multi-sided markets. Traditional service providers become mere “sides” in a multi-sided market. Traditional service providers merely work for a platform’s algorithm. The algorithm dynamically determines for a user what the best service is: the service provided by a traditional service provider, the service provided by a competitor, or even an alternative service that would not have traditionally been a direct competitor.

Transport provides the most mature example: Mobility-as-a-Service. The platform coordinates all the available transport modes (from taxis to bikes and scooters, but also public transportation offerings) and nudges passengers into the most efficient provider, which will be an incumbent such as a taxi, or a newcomer like a private driver, or perhaps a public bus, which can be an efficient alternative. If the algorithm identifies a nearby bus stop and a bus approaching in a matter of seconds, the bus will, overall, be faster and cheaper than a taxi. Alternatively, the algorithm may not offer this alternative because it could result in lower revenue for the platform.

Platforms control the direct relationship with the customer. Traditional service providers (taxis, bus fleets, subway, etc.) start working for the algorithm. Consequently, traditional service providers have more difficulty implementing dynamic management tools such as yield management and discounts, as well as customer relationship management more generally. They become a mere commodity coordinated by the platform.

At the same time, platforms become the coordinators of the system. It is now the role of the platform to match supply and demand, and also to dynamically balance supply and demand. Finally, it is the platform that must ensure the availability of supply.

The platforms create network effects. They appropriate the benefits from these network effects and, subsequently, determine how the so appropriated value is distributed across the ecosystem, including their own share. Still, the ecosystem in and from which online platforms live need to be sustainable. Sustainability requires sufficient funding for the deployment and maintenance of infrastructures; otherwise, the services provided by platforms will eventually collapse.

As platforms are acquiring a central position in more and more traditional network industries, they are impacted ever more profoundly, with consequences that are not yet fully understood and cannot yet be fully predicted.

Digital platforms are transforming the traditional network industries into multi-sided markets. The traditional direct link between service providers and users is being substituted by an intermediated relationship, in which a digital platform intermediates in the relationship and matches service providers and users. Service providers become just one side in a multi-sided market, the service is “commoditized,” and the online platform takes the lead in the coordination of the system. There are already multiple examples of such a trend in the infrastructure network industries.

However, online platforms might pose risks for the funding of infrastructure. First, they can reduce revenue generated by traffic. Second, they can reduce revenue overall, as they allow users to hack the existing pricing structures, as in the case of OTTs in the telecommunications industries. Third, platforms are businesses that require their own revenues to operate. Platforms in the content industries have successfully financed their operations with advertisement. In the infrastructure network industries, however, platforms usually take a commission from the intermediated services. Such a commission will detract some of the value that was previously captured by the infrastructure manager.

Thus, a more structural effect of platforms on the funding of infrastructure can be identified. As infrastructure managers become mere sides in a multi-sided market, the platform gains influence in the provision of the service. The platform has the ability to nudge users from one infrastructure to another, from one transport mode to another, from one telecommunications infrastructure to another, from one electricity producer to another. The services mediated by the platforms become commodities, subject to new competitive pressures.

Infrastructure managers have traditionally taken a coordinating role in the management of the complex systems associated with infrastructures. They build and operate the physical infrastructure and often vertically integrate and provide the transport services over the infrastructure (this was the case in telecommunications, railways, electricity, etc.). However, they also play a more important role as the coordinators of the system, determining the capacity of the infrastructure, prices, managing congestion, etc., often under the supervision and control of regulatory authorities.

Online platforms are now transforming infrastructure industries into multi-sided markets, taking over this central role as coordinators of the systems. They have an increasing role in managing capacity, setting prices, arbitrating among substitutes, etc. - roles that were traditionally played by infrastructure managers under the control of regulators.

In fact, regulation is often fostering this trend. On one hand, deregulation has fragmented the infrastructure industries with new competitors and the unbundling of the vertically integrated monopolies.2 On the other hand, and perhaps surprisingly, regulation sometimes ignores the market power of new actors in the data layer. Examples are regulatory obligations such as “net neutrality” in telecommunications, obligations to share data for transport service providers, and even obligations regarding ticketing, which could give platforms an advantage over traditional players.

It should be noticed that the new coordination role played by the online platforms is often managed through “black box” algorithms? In the analogue world, the decisions of the infrastructure managers (capacity, prices, management of congestion, etc.) were public and subject to public discussion and the scrutiny of the regulators. In the digital world, platforms coordinate industries through algorithms that are not public, are constantly evolving, can be different in each jurisdiction and even for every user and, most importantly, are driven by the interest of the platform.

In short, there is clear evidence that platforms can diminish the value traditionally captured by infrastructure managers, either because such value is captured by the platforms themselves (commissions) or because it is eroded by the new competitive pressure created by the platforms. Even if platforms bring efficiency to the infrastructure industries, they might increase the difficulties for funding the creation and maintenance of infrastructure. Furthermore, platforms are gaining a leadership position as coordinators of the infrastructure networks, substituting both infrastructure managers and regulators as coordinators of the system.

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