People buy things using services like Amazon and Rakuten and share information on social media. We call these places of commerce and exchange “platforms,” and nowadays, they’ve become essential parts of our lives. On the other hand, various issues have also been pointed out in recent years regarding the direction of these platforms, such as oligopolies formed by massive corporations and scams from fake advertising. We sat down with Professor ZENNYO Yusuke of the Graduate School of Business Administration, who researches platform businesses, to tell us about the background and current state of these rapidly growing businesses as well as some challenges moving forward.
Platform businesses are characterized by the network effect
What exactly is a “platform business”?
Zennyo:
The term “platform business” is a wide-ranging term without a single definition, but I like to think of them as “places that connect participants.” Online shopping services like Amazon mediate sales by connecting sellers and buyers, while social media platforms like X (formerly Twitter) and Facebook are places for people to interact, acting to connect advertisers with users who view those advertisements. Even app stores on smartphones, where users can download all sorts of apps, are platforms connecting developers and users.
An important characteristic of platforms is the network effect. When people are attracted to a platform, its value increases, causing more people to join and increase the value even further. The free markets, open guilds and bazaars of the early modern period could be considered platforms where people and things gather, but in the present day, the development of the internet has removed geographical limitations, expanding the networks beyond country borders.
In the conventional pipeline-style supply chain, goods are produced by manufacturers, which are then distributed by wholesalers to small businesses like supermarkets, where the goods are sold. In this case, distributors serve the role of connecting regions. On the other hand, platform businesses provide places for people to connect, acquiring profits by collecting handling charges through various forms of mediation.
When did this kind of business start to gather attention?
Zennyo:
Papers on platform businesses began being published in international scholarly journals from the year 2003. At the time, the Toulouse School of Economics in France was a leader in the field; Jean Tirole, recipient of the 2014 Nobel Prize in Economic Sciences, even wrote a paper on the topic.
In the early 2000s, there wasn’t any research in this field in Japan just yet. However, Rakuten Group had already begun business in online shopping, and young people were starting to buy clothes online.
Amazon, which got its start in the 1990s as an “online bookshop” in the US, eventually went on to attract all kinds of vendors to grow into a world-class platform business.
The “cold start problem” facing newcomers
What is the difference maker between successful and unsuccessful platform businesses?
Zennyo:
The first problem faced by new platform businesses is the “cold start problem.” In order to use the network effect to its fullest, you need to first attract people to the platform. When selling products, if you can’t attract buyers, you won’t get any sellers, and vice versa. Either way, if this “cold start” continues and the business fails to attract people to the platform, it will fall into a downward spiral.
One strategy for overcoming this initial hurdle is to first attract users for free. If you waive handling charges, sellers will decide to register “just in case.” Then, as sellers increase, so too will buyers be attracted to the platform. That said, initially, the platform itself won’t be able to make any profits, so this strategy proves difficult for less robust companies.
Another strategy is that of the “hybrid platform.” Rather than just providing a “place,” this strategy also involves developing products in-house to sell. Take Nintendo for example, which attracted users and garnered popularity by developing and selling games like Super Mario for their own platform. Upon seeing this, game developers like Capcom and Konami joined in, which went on to further enhance this network effect.
I understand you’re researching “platform design,” but what does the “design” refer to here?
Zennyo:
Put simply, it’s researching how you operate platforms. In other words, it’s creating rules for the platforms; it’s also referred to as “platform governance.”
For example, deciding what kind of algorithm to include in your search system or shipping rules when selling products are all parts of design. It’s also important to consider how to handle liability for fake products or any injuries sustained by individuals who purchased products sold on your platform.
Generally, responsibility regarding products falls on the manufacturers, but platform management may decide to expand their compensation rules as a strategy to increase the number of users by providing peace of mind. Conversely, if the platform already has a significant number of users, it’s also possible that they incorporate the strategy of not changing the rules that are in place. However, movements to protect consumers are now gaining momentum across the world, so platform operators aren’t able to simply provide places to sell things anymore. We’re in an era in which legal systems may even be reexamined due to the expansion of platform businesses.
Detailed measures for damages from digital advertising
Aren’t there any issues related to the use of AI in platforms?
Zennyo:
Fake advertisements on platforms are a serious problem, but it’s not specific to AI. While AI has made it easier to make them, fake advertisements have existed for a very long time. In other words, all that’s really happened is that bad people are now able to do these things more easily than in the past.
The real problem is that regulations on digital advertising haven’t been established. There is quite a bit of actual harm due to fraud from advertisements impersonating famous people, and we’ve seen many instances of damages originating from digital advertisements from consultations at consumer centers across Japan.
The damage is spreading not only among the elderly population, but even among younger individuals whom you would expect to have high digital literacy. This isn’t a problem you can respond to by simply educating consumers; more serious measures need to be taken.
What is the current state of legal systems for platforms?
Zennyo:
In 2021, Japan passed the Act on Improving Transparency and Fairness of Digital Platforms (below: the Transparency Act). This act identifies business operators above a certain size as “specified digital platform providers,” requiring them to disclose information and establish procedures and systems.
Currently, these providers are divided into two categories: online malls (Amazon, Rakuten, LINE Yahoo) and digital ads (Google, Meta, LINE Yahoo, TikTok).
For instance, when it comes to online malls, “self-preferencing” is a strategy used by platform management to push their own products. While this strategy isn’t banned in and of itself, these platforms need to make it clear to their users that there is self-preferencing on the platform.
The Transparency Act doesn’t ban or mandate things, but rather, it utilizes a framework of co-regulation. This framework has businesses submit reports, on which the Ministry of Economy, Trade and Industry and other experts discuss issues at monitoring meetings, after which the businesses take the feedback from those discussions and make decisions on how to respond. I myself am a member of those monitoring meetings.
At the time of the Transparency Act’s enaction, there were actually three categories, namely online malls, digital ads and app stores, but now app stores have shifted to the Act on Promotion of Competition for Specified Smartphone Software (Mobile Software Competition Act (MSCA)) which was enacted in December of last year. This new act, currently intended for Apple and Google, aims to promote fair competition by changing the oligopoly created by giant corporations which force users to use their own app stores. This act made news headlines last year, so I’m sure there are quite a few people interested in it.
The act allows the Japan Fair Trade Commission to place restrictions in the case of suspected breaches of defined restrictions and mandates, so it’s quite proactive. It’ll be important to keep an eye on responses by the Japan Fair Trade Commission moving forward.
Overseas, the EU has also strengthened its regulations with the enactment of the Digital Market Act (DMA), which outlines things like restrictions for platform businesses.
Returning knowledge accumulated by theoretical models to society
There is a lot that’s not transparent when it comes to platform business management, so I’m sure it’s a difficult thing to research, but what are your plans moving forward in terms of your research and other activities?
Zennyo:
You’re right about the limited internal information coming from platform operators, which in turn limits what our research can analyze. Thus, my research focuses on using theoretical analysis in economics to construct theoretical models. I plan to continue to use this method to accumulate knowledge in the future.
Since the field of platform businesses is still new, there aren’t many researchers just yet, and those who are in the field are young. Given the situation, I might also take on the role of training the next generation through undergraduate and graduate education. I hope to be able to return the knowledge I’ve accumulated back to society in all sorts of ways.
Resume
In 2010, graduated from the School of Business Administration, Kobe University. In 2012, completed the master’s program at the Graduate School of Business Administration, Kobe University. From 2012-2015, served as research fellow at the Japan Society for the Promotion of Science. In 2015, received his doctorate in commercial science from Kobe University. In 2015, became lecturer at the Faculty of Economics, Osaka University of Economics. In 2017, became associate professor and in 2022, became professor at the Graduate School of Business Administration, Kobe University. Also in 2022, named outstanding professor at the Institute for Advanced Research, Kobe University. In June 2023, became member of the Monitoring Meeting on the Transparency and Fairness of Digital Platforms, METI, and in September 2025, became member of the Consumer Commission, Cabinet Office. Recipient of the Young Scientists’ Award of the 2026 Commendations for Science and Technology by the Minister of Education, Culture, Sports, Science and Technology.
