Data portability effects on data-driven innovation of online platforms: Analyzing Spotify

The EU General Data Protection Regulation (GDPR) introduces a new right to data portability, which allows users to move their personal data to other platforms, potentially affecting competition between rival platforms offering similar (homogeneous/substitute) products or services within the European Union. However, it is still unclear what effects this new regulation could have on competition and, consequently, on innovation in digital markets. Therefore, this paper analyzes the effect of data portability driven by competition on the data-driven innovation response of online platforms such as Spotify, Google, and Facebook. We conduct an empirical analysis of Spotify, which is an online platform facing competition within the EU, and perform a comparison between data portability to number portability of the telecommunication sector to predict the future impact of the new regulation. Finally, we compare the observations on Spotify with Facebook and Google, which are companies in winner-takes-all markets. We argue that online platforms like Spotify, which face competition within the EU, will invest in two forms of data-driven innovation due to the effect of data portability. These types are 'exploitation-innovation,' by improving the existing technology, and 'exploration-innovation' by developing new technology. In 'exploitation-innovation,' firms, like Spotify, will increase investments in data-driven innovation to enhance users' engagement and retention to avoid churn. In 'exploration-innovation,' these firms will invest in data-driven innovation to develop new algorithms to include data from customers acquired from their competitors. On the contrary, online platforms, like Facebook or Google, which do not face real competition, will not have a substantial need to invest in data-driven innovation solely due to data portability.