The writer and activist Cory Doctorow has coined a memorable term for this tendency for platforms to fall apart: enshittification. “Here is how platforms die,” he wrote in January. “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.”
https://timharford.com/2023/03/the-enshittification-of-apps-is-real-but-is-it-bad/
What a lovely word, enshittification. I’m sure you’ve experienced the feeling of your own favorite app/online service going down Route Enshittification, pedal to the metal. Tim Harford refers to Facebook, Instagram, Twitter and Tiktok going down this route, with his own personal experience being a witness to the slow and – as he explains later on in the blogpost – inevitable degeneration of Amazon.
The problem, Harford says, is due to two important concepts that are (at least tangentially) from the field of microeconomics: network effects and switching costs.
What are network effects? The quote isn’t my own, and I’ve forgotten where I’ve filched it from, but here’s the easiest way to understand network effects:
“The first person to buy a fax machine was an idiot. The second was a genius.”
What this means is that just the one fax machine isn’t a useful thing, at all. You need another fax machine to send a fax to. Ditto with email addresses, if you’re looking for a more modern example (well, more modern than fax machines, at any rate!). People from the technology/marketing side of things are probably more familiar with Metcalfe’s Law:
In 1985, the economist George Gilder named the idea Metcalfe’s law. It’s probably the most celebrated equation of its kind since Gordon Moore’s observation about computer chips. Metcalfe says his motivation was not science but commerce. “It was a sales tool,” he says. “People were building small networks and not finding them useful. So I ginned up a slide on an Alto that showed that the cost of a network goes up linearly with the number of nodes, but the number of possible connections goes up as the square. Our salesforce took this 35-millimeter slide and told people the reason they weren’t useful is that they weren’t big enough. The remedy, of course, was buying more of our networks.”
https://www.wired.com/story/plaintext-the-man-who-discovered-network-effects-isnt-sorry/
And what are switching costs? As the phrase itself suggests, they’re the cost of switching from one service provider to another. I’ve had a lot of reasons to be deeply unhappy with my bank over the past year or so. I’m really tempted to switch. But the very thought of having to jump through a million hoops to do so, not to mention having to think through all of the ways my life has become immeasurably intertwined with my curren’t bank’s systems, makes me not want to go ahead with it. The only option that leaves me with regard to my current bank is to bleat at them in outraged fashion once I defeat their IVR. But anyways, that’s switching costs.
Now, combine these two things – network effects and switching costs, and the result, Tim Harford says, is enshittification:
Both switching costs and network effects tend to lead to enshittification because platform providers see early adopters as an investment in future profits. Platforms run at a loss for years, subsidising consumers — and sometimes suppliers — in an effort to grow as quickly as possible. When switching costs are at play, the logic is that companies attract customers who they can later exploit. When network effects apply, companies are trying to attract customers because they will draw in others to be exploited. Either way, exploitation is the goal, and the profit-maximising playbook will recommend bargains followed by rip-offs.
https://timharford.com/2023/03/the-enshittification-of-apps-is-real-but-is-it-bad/
Well, TMKK?
- As Tim writes in his post, as a smart, trained-in-microeconomics consumer, go to town on all the deals that a start-up offers you. Before the enshittification process starts, and while the app is in the “let’s get network effects to work for us” stage, make sure you double down on acquiring all the freebies on offer
- Don’t get attached to the awesomeness of a brand. Get attached to the early stage marketing offers of all brands. Remember, economics is “the dismal science”, and the dismal conclusion from Tim’s post is that all brands will eventually enshittify themselves.
- Read Tim’s post, all of it. Ask yourself if you’re in favor of eliminating switching costs. Remember that the opportunity cost of eliminating switching costs is that apps won’t bother with trying to build out network effects. That means a) no mad offers at the outset, but also, b) weaker network effects on your app. There is, unfortunately, no such thing as a free lunch!
EconForEverybody 