Tuck Knowledge in Practice Podcast: A Playbook for Platforms in Crisis

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Prasad Vana: We think as platform firms become more and more prevalent in the world, they are more and more likely to run into crises. And it is very important for managers of these platforms to understand what are the consequences of having these crises, and how do they manage once a crisis starts to happen?

[Podcast introduction and music]

Kirk Kardashian: Hey, this is Kirk Kardashian and you're listening to Knowledge and Practice, a podcast from the Tuck School of Business at Dartmouth. In this podcast, we talk with Tuck professors about their research and teaching and the story behind their curiosity. Today on the podcast, we have Prasad Vana, an associate professor in the marketing group. Prasad's research focuses on three ways firms use digital marketing to attract consumer attention. The first way is by adopting new forms of digital promotions and advertising. The second way is using online reviews to help consumers through the purchase journey. And the third way is how they use algorithms as a marketing lever. Prasad empirically examines these areas by using statistical and econometric methods, machine learning, structural models, and lab experiments focusing on causal effects. Prasad teaches the core Analytics one and two courses and the Quantitative Digital Marketing elective in the MBA program at Tuck. In this episode, we discuss a new paper Prasad is working on. It's called “When Crisis Hits the Platform Economy the Effects on Supply, Demand and Spillovers.” In this paper, he studies how digital platforms such as Facebook, eBay, Uber, and Kickstarter experience crises in their business. And he has some important findings that can help platforms respond to these crises. So let's begin by defining the platform economy. What is it? How big is it? And how do you think about its role in society.

Prasad Vana: So let me give you like a broad definition of what a platform is, and then a more specific one that we use in this research. So broadly, a platform is just a place where two parties can get together and have a transaction. Under this broad definition, you can go as far back as like 1000 BC, where in ancient Greece there were these marketplaces called Agora, where buyers and sellers would come and meet. That's a classic example of a platform. So more specifically, what we are looking at in this research is a modern, more modern definition of a platform, which is a digital platform where the transactions happen essentially online. If you take like the top, uh, five big tech companies, which are Apple, Microsoft, alphabet, which is Google, Amazon and Facebook, each of these companies offer several platform-based solutions, and together they are valued at about $8.5 trillion of market value as of last year.

Kirk Kardashian: These platforms have really crept into our lives in many different ways, and we all use them probably multiple times a day. Um, so but your paper doesn't just talk about platforms. It talks about a very specific problem that platforms can have, which is a crisis. Um, now any business can suffer a crisis. It could be a communications crisis. It could be a crisis around, uh, something that happened, uh, among the personnel. Um, but what are some examples of crises that happen for platforms? And how are they different from a crisis that might happen at, say, like BP or Starbucks?

Prasad Vana: There is luckily, a rich stream of literature, uh, in the marketing area that has looked at crises when firms are in crises. So a crisis broadly is like a negative incident or a negative event that the firm encounters. And broadly, I think we can put crises into two buckets for our purpose. The first bucket is when the crisis is related to the core aspect of the business, right. So if the company is offering a product or a service, if that product or service faces a problem, that's a classic kind of a firm in crisis. So for example, um, when you were talking about BP, for example, um, it's, uh, the famous crisis that happened a few years ago was when one of the oil's oil rigs had a spill and, uh, all the oil washed over onto the ocean. And it was having effect on the marine life and so on. Right. So that's a classic product-based crisis, right? Um, the other kind of familiar crisis that we're, uh, we might be aware of include product recalls, service failures, and so on. So, for example, Toyota had this, uh, very famous product recall a few years ago where millions of cars were found to be faulty. And, uh, they had to do a very, very large scale recall.

Speaker3: Toyota, which built its reputation on safety and quality, now says it knows how to fix the problem behind the recall in its history. The automaker will redesign accelerator pedals in 4 million Toyotas and Lexuses, including the Camry, America's top selling car.

Prasad Vana: If you abstract away from a traditional firm and think more about a platform firm, one has to question what is the product or the service that the platform offers, right? It doesn't typically manufacture a product. A platform is a place where buyers and sellers come together and have a transaction. So, um, that's why I think, um, you know, digital platforms are different, and the crises that they face, um, are, are a bit different compared to like a traditional firm which could have a product failure or a service failure.

Speaker4: Elon Musk, the owner of X, formerly known as Twitter, is dialing up the pressure on his own company even more after cursing advertisers who paused ads on the social media platform. The advertising freeze from major companies like Disney and Apple came after Musk endorsed an antisemitic conspiracy theory on X earlier this month.

Prasad Vana: Thinking about Twitter, which is now called X. So when Elon Musk took over as the CEO of the platform, he brought about quite a few changes. And, uh, over the course of the few months after he, uh, took over the platform, um, several advertisers dropped out. So that's the, um, the seller side of the platform. These are advertisers who are selling ads on the platform. Um, essentially. And the demand side, which is the typical users of the platform, um, also responded. So a lot of people found, uh, the moves that Elon was making to be unpopular. And, uh, they signed out of the platform. They deactivated their accounts. So there was a response on both sides. Right. And so what makes a crisis in a platform unique is this aspect of that. The platform has these two sides of customers, uh, and they're trying to balance, um, what happens to between these two sides. And these two sides have different reasons for being on the platform and different relationships with the platform itself. And so when the platform has a crisis, it is interesting to kind of see how these two sides respond.

Speaker5: On Monday, we told you that Facebook announced changes it's making to bolster the platform's election security. CEO Mark Zuckerberg acknowledged that his company should have done more to prevent interference from bad actors.

Prasad Vana: Just to give you another example of a platform firm in crisis, uh, about 2020, when Facebook was found to have, um, not done enough to kind of stop the spread of misinformation and hate speech. Uh, a lot of advertisers who became aware of this boycotted the platform and stopped having their ads on Facebook.

Kirk Kardashian: So let's now that we kind of have that setting, uh, let's talk about your paper more specifically. Um, what are the questions that you're really asking in this paper? And how did you start answering them?

Prasad Vana: So just to define a few technical terms, I was earlier referring to buyers and sellers on the platform. So in the academic world, we just call sellers at the supply side and buyers as the demand side. So the key research question we look at here is when a platform firm undergoes a crisis, how do the supply and demand side respond to that crisis? Right. And um, the second question we look at is, um, is the response from each side uniform. That is, you know, do all this, for example, do all the sellers in the supply side respond uniformly, or is there what we call as a heterogeneity or difference in the degree to which different types of sellers respond to the crisis? And the third question that we look at is, is the response of the two sides different based on the type of crisis itself. Right. So earlier I gave you examples of, um, um, the of types of crises which are related to the core business itself. Uh, the other type of crisis that we explore is a crisis that is not related to the core aspect of the business. So, for example, um, this could be where the platform, uh, does or says something that is not considered politically correct or, you know, they it comes out that they're not treating their employees well, uh, you know, issues like that which are not related to the fundamental, uh, aspect of the business, but is nonetheless a crisis in reputation or something else, um, not related to the business itself. Uh, what we look at in this research is we look at two different crises. We look at both a business related crisis as well as a non-business related crisis. And we're looking at are there differences in responses between the two sides when we have these two different types of crises?

Prasad Vana: Just a couple of years ago, Frosthaven was launched by Self-Aware Games on Kickstarter, making it Kickstarter's largest board game on its platform ever to raise nearly $13 million in total. So why would any company move to a different platform? And if you haven't been following Kickstarter in the news, there's a more than a couple reasons why a company might consider moving to a different crowdfunding option.

Kirk Kardashian: You picked a specific case to study, and it's a crisis that Kickstarter endured. Tell us about that crisis at Kickstarter.

Prasad Vana: Yeah. So, like you said, we focus on Kickstarter, which is a crowdfunding platform. And so the business model there is that Creators, which is the supply side or individual entrepreneurs who are who have an idea for a business or a for a product. And so they pitch their idea on the platform. And supporters or backers who are the demand side are just people like you and me, and they just discover these projects, and then they decide whether they want to back and support these projects or not. So that's the business model that we're dealing with here. And so we look at a couple of crises that happened to Kickstarter. So the first crisis, um, chronologically is one related to unionization. Um, so in 2019, um, there were a couple of employees in Kickstarter who decided that they wanted to unionize, uh, the firm Kickstarter, and they were conducting an effort, you know, to towards that end. And the upper management of Kickstarter was very much against this idea. And they ended up firing the employees who were organizing the unionizing effort. Um, and, you know, this union busting effort on part of Kickstarter, uh, was, uh, perceived to be very negatively by a lot of creators.

Prasad Vana: They ended up creating this petition, and about 450 or so creators, um, signed this petition and it got a lot of negative press. Soon after this incident. And the second crisis that we focus on is more business related. Um, so in 2021, uh, Kickstarter decided to pivot their main business, uh, platform, uh, and take it on to, um, a blockchain based, uh, business. So they were still going to be a crowdfunding platform, but they are now going to conduct the. The platform itself, the projects and where people would come and back. The projects would be moved to a blockchain based system. This was once again seen quite negatively by a lot of the creators. It caused a lot of confusion. There were concerns about the environmental impact of moving to blockchain, and maybe learning costs associated with, um, learning how to conduct business on the blockchain. A various host of issues that caused concern and outrage from the side of creators. So since this is related to, you know, where business itself happens on Kickstarter, this is a core business related crisis. So there's these two different crises on Kickstarter that we focus on.

Kirk Kardashian: Okay. So we have these two crisis events at Kickstarter, 1 in 2019, which was a union busting issue which was not related to their product, and 1 in 2021, which was about Kickstarter wanting to move to blockchain, which was related to their product offering. So you have these points in time and then you study what happens after these points, right? Among the buyers and sellers. Right. Tell us a little bit about your method there.

Prasad Vana: Yeah, exactly. What we're focusing on here is; let's focus first on the supply side, which is the, the creators. So how do the creators respond to these crises? So what we do is we focus on short chunks of time before the crisis happened and after the crisis happened. And we look at the difference in how the creators respond after the crisis. Now, um, in the classic, uh, you know, causal research, or what this is called is like a treatment and control groups, right? So there's a bunch of other creators who experience the crisis, and we're looking at what they're doing after the crisis. So the crisis itself is what we call as a treatment. And so we need an equivalent group of creators who were unaffected by the crisis, as it were. That's what we call as a control group. And then we can compare after and before of the treatment group and after and before of the control group, and isolate precisely the effect of the treatment on the on the creators who were affected by the crisis. So we had to get a little clever in identifying who would form the control group of creators who were unaffected, essentially by the crisis.

Prasad Vana: So what we came up with for the union busting case is we focused on the creators on Kickstarter during the crisis, but those who were operating not within the US, but they were residing outside the US and having their projects posted onto Kickstarter. But they were not United States creators. So the idea there is that, um, unionization, union busting, uh, is a very US focused activity. Kickstarter itself is based in Brooklyn in the US. And so, a lot of the media coverage and the negative reputational spillover happened within the United States. So, uh, we were operating under the assumption that creators who are not based in the United States would not be affected by this crisis. So we conduct a number of rigorous mathematical tests to make sure that the control group was unaffected by this crisis, and we are able to show that the creators in the US who did encounter the crisis, responded negatively. So what we find is that there is a probability that they withdraw their projects from the platform. They're less likely to have their projects active on the platform following the crisis.

Kirk Kardashian: Okay, so the crisis happens. The creators take that in. They see it and they respond and they start taking their projects off the platform. Is that basically what happened?

Prasad Vana: That's precisely right. So from the supply side perspective, that's what we see. Um, now focusing on the second crisis, which is related to the blockchain pivot of Kickstarter. Here, once again, we had to get a little creative in identifying the control group. Now, unlike in the union busting case, whether you're in the US or not, in the US, you were. If you were a creator, you were affected by the crisis because all of the platform was being transported into the blockchain. And so the non-US creators do not form a good control group anymore. And so what we did here is since the crisis happened in 2021, we were trying to see if a different year would be a good control group. Unfortunately, 2020 would not have been a good control group because that's the year when Covid happened and all of the world went crazy. And you know, Kickstarter was not, you know, isolated in that. And so we didn't want to use the year prior as a control group. So what we ended up using was a year after as the control group. So we look at this exactly the same time frame as the blockchain pivot, but a year after.

Prasad Vana: And we claim that that's a very good control group because about 2 or 3 months after the blockchain pivot crisis happened Kickstarter came out and made a statement saying that they hear the voices of the creators, they see that there is confusion and outrage. And so they decided to kind of pause this movement to blockchain. And so if you look at our data, once they made that statement, we start to see that creators kind of started once again to come back onto the platform and business as usual started commencing. And so if you take it eight months after that, contemporaneous, one year later to the crisis, we feel that that would that the creators at that point would be a very good control group because there wasn't a crisis anymore. A year after this. And so that's what we do. And once again, in the blockchain crisis as well, we find that creators responded negatively. So they withheld their projects or they stopped posting their projects on the platform after the crisis started.

Kirk Kardashian: Okay, so we've got a definite hit to Kickstarter on the supply side from creators, but you found something a little bit different from the demand side from people who would be backing these projects, right? How did they respond?

Prasad Vana: Yes, exactly. We find, surprisingly, that the response from the demand side was rather muted. We find there wasn't really a change in the level at which projects were getting successful on the platform. So it appears as if backers were not especially motivated or demotivated to participate in the platform. They were just kind of continuing their activity on the same level as they were before the crisis.

Kirk Kardashian: That's interesting. So if you’re Kickstarter, you're not necessarily worried about how project backers are going to respond to this, you're worried about the number of projects that are going to be on the platform.

Prasad Vana: Yeah, I think that's the that's very important. And it's an important factor for Kickstarter because their bottom line at the end of the day depends on that, right. So the business model is that they work based on commissions. So whenever a project is successful, they take a standard percent of whatever money was raised by the creator as their commission. And so, from their perspective, they're always concerned when a number of projects go down, because number of projects is directly proportional to the amount of money that Kickstarter will be making. So a response, especially a negative response from the supply side, is of particular concern to the platform. Kickstarter.

Kirk Kardashian: Interesting. So I think another interesting aspect of your study is you looked at the different types of creators and how they responded to the, to these crises, because you have creators that, that make, say, an invention, right? But you also have creators who are more in kind of the cultural product category, which is like making comic books or some writing or some art. Um, so tell us about how those sort of different categories of creators, differed in their response to the crises.

Prasad Vana: Yes. Having set out, you know, the main result, which is that in both the crises, crisis, the supply side responds negatively. We then decided to explore how different categories of creators respond differently. And that's where we found like the real richness of the results. So what we found is we first categorize creators into two buckets. Those who, you know, we label them as fan based. So fan based or creators who, you know, while they're trying to raise funds. The other kind of objective of being on the platform is to actually create a fan base, right? So you think about creators of video games or music artists and authors. So their idea is to raise funds to finish their product, but also in the process to create a fan base and to keep that fan base loyal to themselves in the future as they put out more products. So that's one type of creators on the platform. And there's another type of creators on the platform who are kind of coming up with more mundane inventions, as you called it. You know, like watches and what have you. Who's who are there just to raise their fund, get their product into realization and to just sell it on the market and not particularly worried about the fan base that follows that product. And so what we found is that in the union busting crisis, we found that the fan-based creators responded a lot more negatively compared to the non-fan based creators. And, so we think the reason that we find this result is because fan based creators are in particular, a lot more concerned about having a reputational spillover from the crisis onto themselves.

Prasad Vana: And then that would affect their ability to create a fan base going forward in the future. And so that's the reason why we think the fan base creators were a lot more likely to stop posting their projects on the platform after the crisis, compared to the fan base creators. Now, in contrast, what we find in the blockchain pivot crisis is that both fan-based and non-fan based creators responded negatively. Right. So this is a type of crisis that was uniform. It affected the operation the business on the platform. And so both type of creators were a lot more likely to respond negatively to this crisis. So we found that that was a very interesting set of results. And then we decided, okay, let's slice and dice the type of creators into a few more buckets. And so we found a couple other very interesting results. So for example, what we next looked at was how loyal were these creators on the platform, right? So what we looked at was, is this the first project that these creators are posting on the platform or, you know, have they posted before? And this is maybe their second or fifth or 10th project on the platform. So when we separated creators by those who posted just their first project versus those who were repeat creators of projects, we found that repeat creators who are more loyal to the platform were a lot less likely to respond to these crises.

Prasad Vana: So these are probably the creators who've been here. They've seen all this, and they probably trust the system to work a lot more. They think that these types of crises are, you know, just passing storms. And so they are a lot more likely to just stick with their plans and to continue posting their projects. So we find there's a difference between repeat creators versus single first-time creators. And finally, the other type of creators we looked at was just to kind of proxy small creators versus large creators. We came up with this hypothesis that small individual creators, as opposed to those creators who, you know, have a team of people operating within themselves, probably talk about their projects differently. And so what we did was we looked at the text of the pitch for the project that these creators make, and we looked at those projects where the word I, me or, you know, similar words that respond to one that refer to one person if they are used a lot more versus those where it's the V and in the US type of words. And what we found was that creators who use the I word a lot more, which we think are a proxy for small individual creators are a lot more likely to respond to these crises compared to those who use us and V and other group type words.

Kirk Kardashian: Wow. That's really interesting, Prasad. So in effect, by studying the responses of the of the supply side and the demand side to these Kickstarter crises, you're in a sense, helping platforms understand how people might be responding to future crises. Is that sort of one of the goals here?

Prasad Vana: That's correct. We think as platform firms become more and more prevalent in the world, they are more and more likely to run into crises. And it is very important for managers of these platforms to understand, you know, what are the consequences of having these crises, and which are the type of supply side members and demand side members who are more likely to respond. And how do they manage one's crisis as it starts to happen, right? So just focusing on some of the results that we have. For example, if you are a manager of this platform and you find out that a lot of the supply side agents on your platform are just one-time agents, right? So for example, in a crowdfunding contest, maybe it's a lot of creators or those who post one project and they never again appear on the platform. If that's the nature of your platform, then you have to be very careful about these crises, because what our research shows is one- time creators respond a lot more negatively compared to repeat creators. In contrast, if you're a platform that has a pretty large, loyal base of creators who keep coming back and keep posting on the platform.

Prasad Vana: Then probably you are more immune to these types of crises because they don't probably concern themselves too much about these types of crises. So you're probably better off in that scenario, right? In the same way, for example, if you're a crowdfunding platform that primarily creators, caters to artists and video game designers and other fan-based type of creators, then you should probably be more concerned about crises that may not be business related—but that are maybe more related to the reputation about the platform. If there's a crisis that affects the reputation of the platform, these fan-based creators are really concerned about the reputation spilling over onto themselves and hurting their fan base efforts. And so they are likely to withdraw from participating on the platform. So really, I think what our results tell managers is to understand their customer base in detail and to kind of be prepared and anticipate the kind of response that might occur when their platform goes into a crisis mode.

Kirk Kardashian:I want to give a huge thanks to my guest, Prasad Vana. You've been listening to Knowledge and Practice, a podcast from the Tuck School of Business at Dartmouth. Please like and subscribe to the show and if you enjoyed it, then please write a review as it helps people find the show. This show was recorded by me, Kirk Kardashian. It was produced and sound designed by Tom Whalley. See you next time.