The Enshitification of Everything - Why is everything getting worse?

"Enshitification" is a wonderfully crass term that describes how products rapidly become worse once they start to reach large scale maturity and majority marketshare. The term was popularized by Cory Doctorow, a journalist, author, and tech activist who used it to describe the process by which specifically online platforms, apps, or services gradually degrade in quality as they chase profits, often to the detriment of their users.

Here’s how/when enshitification typically unfolds for most companies:

1. Initial User Focus (market entry, <10% market share): A platform starts by prioritizing user experience to attract and grow its user base. Everything is sleek, fast, and free. Think, the early days of Uber or Airbnb.
   
   Basically at this stage, they are happy selling $10 for $5 and you’d be stupid not to take as a user. This makes sense because these companies hope that the economics will shift as their powershifts. For this reason, enshitification happens in markets where there are significant benefits to being a larger player (this can be for reasons like economies of scale, network effects, etc). I’ll talk through some industries/markets where we see this later…
   

2. Monetization Shift (mid-scale achieved, 25%-50% market share): Once the platform has a solid user base and some scale, suddenly giving away money in exchange for growth is scaling painfully…depending on their industry they may also be hitting the limits of investment that’s purely growth-focused or willing to be ambitious at this scale. They need to slow the flow of losses.
   
   At the same time, there’s enough lock-in that confidence on what they can do is shifting - with this much market share, even with some friction their flywheel will keep them growing. Balance between user value and corporate value swings…prices may increase, quality of service lessens, annoying (but not-killer) monetization efforts are introduced, like ads, data capture, more tiers with limitations, etc. If we stayed here, both sides would probably be ok.
   

3. Enshitification (monopoly/monopsony achieved or inevitable, 50%-100% market share): The final stage is where we see full-blown enshitification happen. Here, the platform has full lock-in and their fears around alienating users are pretty much entirely gone as they’re the market leaders and they now have network effects protecting them and oodles of cash to fend of competitors. Think Airbnb/Uber…as long as customers know that these platforms have the most people on there, they are stuck coming even though there’s now a premium to do so (on both sides).
   
   At the same time, they’ve reached a scale where growth matters but is not the core focus anymore - they may be reaching the limits of their markets (or growth focused funding opportunities) so crazy growth isn’t feasible anymore and at this scale starting to run like a public company is becoming more important, meaning profits (or a path to them) increasingly matters.
   
   This stage involves significantly larger value capture by the companies, at user’s expense. This often means larger price hikes but can also mean features/issues that were once annoying becoming infuriating and sometimes even the introduction of costs (externalities) on wider society, in the pursuit of profits (examples being: social media → political meddling/public mental health, airbnb → housing regulation issues and over-tourism, uber → workers rights/transport regulation issues).

You can visually represent this with the below chart, where the red line shows market share (on the right axis) and the blue line shows an index of corporate vs customer share of value. It’s illustrative of the point, rather than following any specific company’s data.

I’ve roughly labelled these points, but as a reminder:

At point 1, there is a competition for market share, so the focus is on providing value to customers (in order to catch more).

At point 2, as a reasonable market share is reached and the flywheel is spinning, some compromises on the consumer share of value are made but these are generally reasonable - it’s still mostly value accretive to customers.

At point 3, when the market is controlled and a moat is setup (about 66% onwards, roughly) the consumer value share goes into freefall and fairly soon all value will go to the corporations.

So…is this concept new?

No.

I think that while this is a super fun and catchy terminology, the reality is that it’s a popularization of concepts and effects that are well understood, and it’s increasingly applying everywhere. Enshitification is basically a generalization of the basic wisdom of monopolies.

Basically, enshitification is exactly this, the outcome of near or effective monopolies and the clearest sign of a market that is not properly competitive. We all have the conventional wisdom that non-competitive markets are not good for consumers and we can either go through some undergrad level economic graphs to explain this, or just understand one basic principle: As the need to compete lessens and barriers to entry rise, there is less pressure on companies to actually win over customers, rather than do just enough to avoid losing them. This gap gets eaten up by the producers as extra profits.

Just to spell out the moats, there are 2 key ones. One is network effects, the other is economies of scale.

Regarding network effects, this simply means that a business who’s job is connecting people is more useful when everyone else is on their network. Think of a telephone network, the more people on it, the more useful it is. So, uber has high lock-in on both sides because riders know drivers are there, and drivers know riders are there. Facebook/instagram is the same, no point making content on a network which has no people to follow you. At some point, when you have most of the network, things can get pretty enshitified before it makes sense for customers to leave your ecosystem altogether.

Regarding economies of scale, this is the classic business one which helps Goliath mostly beat David. The classic meaning is that when you’re bigger, you can make larger investments as it’s spread over a wider base of users, and you have more negotiating power to bring down your costs. Imagine you’re a company turning over £100m. Investing £10m into software engineers to build the best product and iterate quickly isn’t a big deal. If you’re turning over £5m a year, this is impossible to do (without raising shit tons of cash to fund it). This is partially why companies aren’t usually disrupted until there is some fundamental shift which allows a new player to counter-position (i.e. do some offering that the big company just isn’t set up for, like uber vs taxis or Airbnb vs hotels).

So this isn’t even new? Why are we talking about it?

Despite this not being new, I think enshitification is catchy as a term for a couple reasons.

1. The rate of transformation from highly consumer-value-accretive to highly just sucking is so fast that it gives us whiplash.
   
   We actually perceive the products becoming shit sometimes as fast as month to month. As such, we resent the current shitness because we remember the good times; we do not approach these companies with the presumption they should be shit (like cable/broadband or utility providers).
   

2. There is less of a sense of inevitability/necessity.
   
   Speaking of utility providers…with old school monopolies there are practical limits that we can understand - you don’t want 5 water lines coming into your building, it’s stupid to have 5 railway lines on the same route, etc. However, taking social media as an example, we absolutely can imagine a more competitive social media landscape and stop the most predatory/harmful social media practices altogether if we wanted to.
   
   To give practical examples (though extreme), we could ban advertising revenue mechanisms at platforms in favour of product subscriptions by users, meaning social media has to focus on being an enjoyable social tool to make money rather than sucking all our attention. Another idea focused on reducing lock-in could be making logins more portable via an “open banking” style system, avoiding heavy lock-in to a single platform. Plenty more ideas come to mind.

Between these 2 factors, enshitification basically is so real because the monopoly outcome feels like a mistake rather than an inevitability.

Ok so centralizing power for the “producer” tends to lead to worse outcomes for the “consumer”…this feels familiar, where else is this happening?

This is what I’ll dig into more in my follow up articles, but effectively any market that doesn’t naturally balance in a competitive state ends up with this problem, and the two where I think we’re seeing this most is our political systems and our social capital (or “attention economies”).

Whether it’s endless shit sequels of marvel movies, or a kardashian on social media, or who you can vote for, we increasingly see power concentrating in fewer and worse choices…and those worse chioces benefiting more nonetheless. In fact, it’s no coincidence that Trump, as the now meeting-point of politics and the attention economy, became president in the last 10 years as these powers and concentrating, and I fear only worse is to come there…

Anyway, that was fun, catch you soon for the follow-ups :)