Now it seems that he has managed to add a neologism to the language, even if it is both ugly and memorable, to describe the business processes of tech companies over time. This is the word “enshittification”. Well, as I said: ugly and memorable.

The phrase appeared first, I think, in a column that Doctorow wrote for Locus at the start of the year (it might have been earlier, since he is so prolific it is hard to keep track). The column dealt with the life cycle of technology companies. He was specifically interested in the exodus of users from Facebook and Twitter, although he has applied the model to TikTok and Amazon since then as well.

(Marc Smith, 20120227-NodeXL-Twitter-bigdata network graph, via Flickr, CC BY 2.0)

Switching costs

The argument goes like this. Successful social media companies enjoy network effects: the more people are on it, the more other people want to be, or need to be, on it. Network effects are factorial in their effects, because of the way the number of possible connections increases as more people join. But when people leave, this process goes into reverse.

One of the reasons why people don’t leave is because of ‘switching costs’. In social networks these costs are almost all social costs: you can’t access groups of friends you used to be able to access, for example. As social media companies have got more sophisticated (I don’t mean ‘sophisticated’ in a good way) they have learned new ways to make it more difficult to leave.

So, in short, the underlying logic of a social network is to make it as easy as possible for people to join—and as hard as possible to leave:

as Facebook and Twitter cemented their dominance, they steadily changed their services to capture more and more of the value that their users generated for them. At first, the companies shifted value from users to advertisers: engaging in more surveillance to enable finer-grained targeting and offering more intrusive forms of advertising that would fetch high prices from advertisers.

Takers not makers

This is the process of ‘enshittification’. And in the process, the value proposition changes. The companies become takers rather than makers. In his later article in Wired, on TikTok and Amazon, he had got this story down to a crisp few lines:

Here is how platforms die: First, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die.

The particular business models that have underpinned the digital tech sector have sharpened this process. Venture capitalists don’t worry too much early on about profits, or even revenues: what matters is user numbers and user growth. But they do later. Or they want to get their money back through a sale or a stock market flotation (IPO).

Beyond the tech sector

Perhaps not by chance, Doctorow’s neologism has had some airplay elsewhere recently. John Naughton mentioned it in his tech column in the Observer. And Tim Harford discussed it in a recent Undercover Economist (paywalled?) Financial Times column. And this whole process may also reflect that the tech sector is now a mature sector, with limited (or no) opportunities for growth from acquiring new customers, and therefore it starts to behave more like the rest of the economy.

In Techdirt in January, Mike Masnick suggested that this was a problem that extended beyond the tech sector. He traced it back to Milton Friedman’s assertion that the only duty of a company was to return value to shareholders. As a business model we know that this isn’t sustainable:

maximizing revenue in the short term… often means sacrificing long term sustainability and long term profits. That’s because if you’re only looking at the next quarter (or, perhaps, the next two to four quarters if we’re being generous) then you’re going to be tempted to squeeze more of the value out of your customers, to “maximize revenue” or “maximize profits for shareholders.” That’s because “Wall Street” and the whole “fiduciary duty to your shareholders” argues that if you’re not squeezing your customers for more value — or more “average revenue per user” (ARPU) — then you’re somehow not living up to your fiduciary duty.

Extractive business models

So this is about the conflict between companies with extractive business models, and companies with productive business models—locusts and bees, as Geoff Mulgan once called them.

Masnick quotes the tech publisher Tim O’Reilly in the same vein:

Tim O’Reilly has (correctly) argued that good companies should “create more value than they capture.” The idea here is pretty straightforward: if you have a surplus, and you share more of it with others (users and partners) that’s actually better for your long term viability, as there’s more and more of a reason for those users, partners, customers, etc. to keep doing business with you.

As Masnick and O’Reilly observe, this problem is more about the financialisation of the corporate sector than it is about particular characteristics of the tech sector (although the particular characteristics of the tech sector certainly help.)

Squeezing the business

I was reminded of Doctorow’s article because I was interested in the way that private equity companies squeeze the businesses they acquire to achieve efficiencies and increase returns, because I’d had a bad experience recently with a formerly family-owned business that had been acquired by private equity. It had become more interested in revenues and returns, and less interested in the quality of experience of its customers.

I might come back to private equity in another piece, since I think its significant rolein the British economy (and the American) may be one of the reasons for productivity crisis in the UK. Because: if investors expect 5%-plus returns in a 1-2% growth economic environment, this is more likely to lead to extraction than to investment. The reason: investing for growth is harder, less predictable, and takes longer to generate returns than cutting jobs and services.

In other words, the diagnosis of ‘enshittification’ is right on the money. But the disease is far more widespread, and goes far deeper, than Doctorow suggests.

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A version of this article is also published on my Just Two Things Newsletter.

The future as seen from the 1920s. Image: Max Saunders, via The Conversation.

‘In 2030 we ended the climate crisis’. Here’s how. A striking image of the future, and our path to it in The Correspondent.

If companies are serious about the environment, there’s no excuse. They can start by putting their best people on it. Related: Siemens’ extended special pleading about the Adani Carmichael project is how not to do it.

The free market paradigm is over. It has been killed off by the inter-connected nature of digital engagement, says Diane Coyle. [May require registration]

Machine learning is basically conservative. It looks for things that are just like the things it’s already learned. Cory Doctorow has a sharp essay in LARB

Back in the 1920s, people started getting intrigued by the future. The Conversation on a whole generation of idiosyncratic optimists.

The films listed for the Best International Feature Film Oscar are usually overlooked. But they can be a useful guide on what’s being made worldwide. Vox published a guide.

The Coventry Carol survived from the middle ages through a series of accidents. As this BBC Soul Music podcast explains, it is a song about loss. (30 mins)

“The whole world’s at sixes and sevens, and why the house hasn’t fallen down about our ears long ago is a miracle to me.” (Thornton Wilder)

Obviously such considerations are opened up by Murdoch’s recent remarks that he plans to exclude his newspaper content from the Google search engine. The broad sweep of strategy had some detail added to it by his “chief digital officer”, the other, less famous, Jonathan Miller, who explained that Google didn’t provide very high value consumers:

The traffic which comes in from Google brings a consumer who more often thannot read one article and then leaves the site. That is the least valuable oftraffic to us… the economic impact [of not having content indexed by Google]is not as great as you might think. You can survive without it.”

The Ad Lab blog at MIT tries to dig into this case, and in a way that looks for some rationale for News Corp, but the story they tell doesn’t match the data they’ve dug up; on the News Corp financial services, Google is second or third largest search traffic provider, on news services it’s usually top.

Squeeze points

The evidence for the clash of business models comes from a look at News Corp’s preferred businesses, and they’re typically in sectors where a squeeze point in the value chain offers some control over the market and creates barriers to entry. In the newspaper business, that’s the sheer cost of printing presses and the complexity of distribution networks. In the pay-television business it’s the encryption technology (where News Corp also owns businesses which do the encryption) and the rights deals with sports bodies and studios. Both are backed up by some of the best competition lawyers that money can buy.

The competition between such business models and the internet is like the battle between water and stone; water will win, but it will take time. This is the best explanation for Murdoch’s positioning; he gets the internet perfectly well, and understands its long term impact on his businesses, and is looking to squeeze out value in the meantime through whatever delaying tactics are to hand.

Cory Doctorow points out that the MySpace acquisition – certainly overpriced – was offset by a sale of the search rights, and  that Google competitors out there might – just – pay for exclusive rights to search News Corp’s online properties. Using the ‘Boston Box‘ model, this suggests that Rupert knows the game’s up for the papers, at least in the medium term, and that he will milk his cash cows (high market share, low market growth) for what he can get.

Playing the lobbying game

And maybe there’s a lobbying game going on here as well. The old joke about the definition of chutzpah is of the boy who who kills his mother and father and throws himself on the mercy of the court because he’s an orphan. As a well-practised monopolist/oligopolist, Murdoch knows one when he sees one, so drawing attention to Google, particularly, makes sense. I think we’ll see more of this from News Corp in its public pronouncements in the future. (Indeed, James Murdoch may even now be regretting wasting his Edinburgh platform on attacking the BBC and Ofcom).

And we’ll see more positioning along the lines of ‘ickle-lickle newspapers being beaten up in the playground by big ugly internet monsters’. The other part of Jonathan Miller’s remarks at the Monaco Media event, in which he also acknowledged that News Corp wouldn’t go it alone, is likely the shape of kite-flying to come:

“We will lead. There is a pent up need for this. There has to be a resolutionfor the free versus pay debate otherwise we cannot afford to pay for thingslike news bureaus in Kabul.”

I’d like to believe Cory Doctorow’s account of Murdoch as, Kane-like, “an out-of-touch moustache-twirler who’s set his sights on remaking the web as a toll booth”, and Doctorow seems alarmed – rightly – by Murdoch’s attack on the notion of “fair use“, which is one of the deep underpinnings of independent and academic research, and of free speech. These things are dangerous fall-out from people trying to hold onto an empire as it starts to totter. Murdoch’s position here is designed to cause ambivalence, as News Corp so often does. I’m supposed to believe in the value of the freedom of speech and information created by news bureaux ‘in Kabul’, (and of course News talks about Kabul and not about Gaza). But I also know, over and over, the way in which that news is distorted in the Sun and the New York Post. This isn’t about protecting independent news media; it’s about welcoming the decline and fall of a media monopoly.

Update, 15th November: John Naughton notes in his Observer column (available here via his blog) that people rarely pay the full value of content in print media either – and usually, it’s not even close.

Update, 16th November: Emily Bell argues that this is about politicking by News Group:

The Murdoch threats to block the search engine, take away his highly original content and build a big paywall are a signal to politicians with a grasp of digital markets that he would like something done about this. For all his public dislike of big government, Murdoch’s most audacious business gains have always come from playing a brilliant political game.