Enshittification, p.2
Enshittification, page 2
Stage Three: A Giant Pile of Shit
For advertisers, this took the form of rising prices and plummeting ad fidelity, along with skyrocketing ad fraud. Gradually, Facebook ramped up the price of targeting an ad to its users, but it also took less care to show ads to the users advertisers had selected.7
Meanwhile, ad fraud was going wild. Advertisers were paying billions for ads that no one ever saw. In 2018, Procter & Gamble zeroed out its $200 million annual “programmatic advertising”8 budget and saw no decline in sales.9 It seems all of those ads were either:
Being shown to random people rather than the people P&G was paying to target; or
Not being shown to anyone.
It wasn’t any better for publishers. Gradually, Facebook’s content recommendation algorithm started to require longer and longer excerpts in order for posts to qualify for being shoved into strangers’ feeds. The system also started downranking shorter excerpts in subscribers’ feeds, meaning that publishers had to push longer and longer excerpts onto Facebook’s platform in order to be seen at all. The longer a post was, the more substitutive it was for the whole article.
Eventually, publishers were corralled into publishing their whole articles on Facebook, and then, to add insult to injury, Facebook started to suppress posts that linked away from its site, on the grounds that such links might be “malicious.” Worse, even whole articles with no links were often suppressed, even for followers, and publishers had to pay to “boost” their content in order to have it shown to the people who’d explicitly asked to see it.
At this point, the publishers had been converted to commodity back-end suppliers to Facebook, and their main path to monetization was Facebook’s own rigged ad marketplace.
Meanwhile, for users, things kept getting even worse. Facebook dialed down the quantum of content from the people you chose to follow and wanted to hear from to a mingy, homeopathic residue, leaving behind a newsfeed void that the algorithm could fill with content people paid to put there: ads and boosted content.
This is stage three of enshittification: Facebook has now withdrawn all available surplus, leaving behind the bare minimum it calculates to be sufficient to keep users glued to one another, and publishers and advertisers glued to the users. Every available penny of surplus has been clawed back and given to Facebook’s shareholders and executives.
But this is a very brittle equilibrium. The difference between the user who says, “Goddamn I hate this place, but I can’t stop logging in to it,” and the user who says, “Goddamn I hate this place, and I’m never coming back” is razor-thin.
All it takes is one whistleblower, one Cambridge Analytica–style privacy scandal, one livestreamed mass shooting, and users bolt for the exits.
Every time that happens, Facebook learns that network effects are double-edged swords. The users who can’t leave because they can’t bear to part with their friends have no reason to stay after those friends depart. Once the exodus starts, it tends to accelerate.
Investors certainly understand this. Any bobble in Facebook’s growth—let alone a contraction in Facebook’s user numbers—triggers shareholder panics. In the first quarter of 2022, Facebook posted lower-than-projected US user growth, and the stock market responded with a mass sell-off, dumping $250 billion worth of Facebook shares in twenty-four hours, at the time the largest decline in any corporate valuation in the history of the human race.10
When their company’s fortunes turn uncertain, tech leaders panic. Being techies, they have a technical name for this panic: they call it pivoting.
Facebook’s pivot was decidedly weird. Mark Zuckerberg addressed the world and said, “Look, I know I’ve spent the past decade insisting that the future would consist solely of you arguing with your racist uncle using a primitive text interface of my own devising. But I have had a revelation. It turns out that the future really will involve me converting you and everyone you love into a legless, sexless, low-polygon, heavily surveilled cartoon character in a virtual world called the Metaverse, which we ripped off from a twenty-five-year-old dystopian, satirical cyberpunk novel.”
That’s end-stage enshittification, the stage at which a platform turns into a pile of shit. Facebook isn’t the first platform to reach this stage, but it has managed an improbably prolonged period of shambling continuation, long past the date when we should have put it into the ground.
That’s what distinguishes enshittification from “tech companies turning awful and going out of business.” All our tech businesses are turning awful, all at once, and they’re not dying. We remain trapped in their rotting carcasses, unable to escape.
I’ll explain why that is in Part Three, and in Part Four, I’ll explain what to do about it.
Case Study: Amazon
In Jeff Bezos’s original business plan for Amazon, the company was called Relentless. Critics say that this is a reference to Bezos’s cutthroat competitive instincts, but Bezos always insisted that it was a reference to his company’s relentless commitment to customer service.
How did Amazon go from a logistics company that got packages to you quickly and efficiently to a behemoth of digital content defined by the Prime experience (which has much less to do with free shipping now and more with everything else)?
Stage One: Good to Users
Like Facebook, Amazon started with a large surplus that it was able to allocate to its customers, and allocate it did. The company raised a fortune from early investors, and then a larger fortune by listing on the stock market. Then it used that fortune to subsidize many goods, selling them below cost. It also subsidized shipping and offered a generous, no-questions-asked, postage-paid returns policy.
As with Facebook, this offer tempted millions of users to pile onto the platform. Unlike Facebook users, however, Amazon users didn’t automatically lock themselves in with the collective action problem. It doesn’t matter to your neighbor whether you shop at Amazon or not. Your purchase of ebooks or audiobooks on Amazon doesn’t make those books more valuable to other readers. Your Prime membership doesn’t make their Prime membership harder to give up.
But that Prime membership does go a long way to locking you in to Amazon. Paying for shipping a year in advance is a powerful incentive for you to do your shopping on Amazon. Indeed, the overwhelming majority of Prime subscribers begin their e-commerce searches on Amazon and, if they find what they’re looking for, don’t comparison shop for a better deal.
You can think of Prime as a form of soft lock-in, Amazon binding you to its platform with a silken ribbon. But Amazon’s also got some iron chains in its toolbox. All the audiobooks and movies, and most of the ebooks and e-magazines, you buy from Amazon are permanently locked to Amazon’s platform.
That’s because these products are sold with digital rights management (DRM), a form of encryption designed to force you to view or listen to these digital products using apps that Amazon controls. Break up with Amazon and delete your apps, and you will lose all the media you’ve ever bought from the platform. For a certain kind of reader, listener, or movie buff, this is a very high switching cost indeed.1
Amazon has one more trick up its sleeve: after years of selling goods below cost, it has completed the work that Walmart started, eliminating swaths of small, independent brick-and-mortar businesses. Its online predatory pricing tactics have done the same for much of the e-commerce world.2
That means that shopping anywhere other than Amazon has gotten substantially more inconvenient.
These tactics—Prime, DRM, and predatory pricing—make it very hard not to shop at Amazon. With users locked in, to proceed with the enshittification playbook, Amazon needed to get its business customers locked in, too.
Stage Two: Good to Business Customers
Amazon was initially very good to those business customers. Amazon paid full price for their goods, then sold them below cost to its customers. It subsidized returns and customer service, too. It ran a clean search engine, which put the best matches for shoppers’ queries at the top of the page, creating a path to glory merchants could walk merely by selling quality goods at fair prices.
Then, once those merchants were locked in, Amazon put the screws to them—just as Facebook put the screws to the publishers and advertisers.
Amazon brags about this technique, which it calls “the flywheel.” It brings in users with low prices and a large selection. This attracts merchants who are eager to sell to those users. The merchants’ dependence on those customers allows Amazon to extract higher discounts from those merchants, and that brings in more users, which makes the platform even more indispensable for merchants, allowing the company to require even deeper discounts—and around and around the flywheel spins.
Let’s take a step back before we get hurt. This flywheel is the direct product of a radical legal theory that has had the world in its grip since the late 1970s. From the 1890s until the Carter administration, corporate power was blunted by antitrust law, which treated large corporations as threats simply because they were large. Once a company is too big to fail, it becomes too big to jail, and then it becomes too big to care. Antitrust law was designed to fight that apathy and force companies to care.
A rival—and frankly terrible—theory of antitrust law says that the only time a government should intervene against a monopolist is when it is sure that the monopolist is using its scale to raise prices or lower quality. This is the “consumer welfare standard theory,” and its premise is that when we find monopolies in the wild, they are almost certainly large and powerful thanks to the quality of their offerings. Anytime you find that people all buy the same goods from the same store, you should assume that this is the very best store, selling the very best goods. It would be perverse (goes the theory) for the government to harass companies for being so excellent that everyone loves them.
It was under this theory that Jimmy Carter started to remove a few of the Jenga blocks from the antitrust system. Then Ronald Reagan came along and tore them out by the fistful. (Most of the right-wing policies for which we remember Ronald Reagan started under Carter, who was hoping to woo conservative voters. He failed.) Every president since—Republican or Democrat—followed Reagan’s example, up to (but not including) Joe Biden.
The Amazon flywheel is designed to fit neatly into the consumer welfare framework. It proclaims itself to be an enemy to merchants on behalf of consumers. The flywheel is all about lowering prices, and the consumer welfare standard theory prizes low prices above all else.
Stage Three: A Giant Pile of Shit
Amazon has a myriad of tactics at its disposal for shifting value from business customers to itself, some of which also involve shifting value away from end users, no matter what the cute flywheel pitch says.
Amazon uses its overview of merchants’ sales, as well as its ability to observe the return addresses on direct shipments from merchants’ contracting factories, to cream off its merchants’ bestselling items and clone them, relegating the original seller to page umpty-million of its search results.
Amazon also crushes its merchants under a mountain of junk fees that are pitched as optional but are actually effectively mandatory. Take Prime: a merchant has to give up a huge share of each sale to be included in Prime, and merchants that don’t use Prime are pushed so far down in the search results that they might as well cease to exist.
Same with Fulfillment by Amazon, a “service” in which a merchant sends its items to an Amazon warehouse to be packed and delivered with Amazon’s own inventory. This is far more expensive than comparable (or superior) shipping services from rival logistics companies, and a merchant that ships through one of those rivals is, again, relegated even farther down the search rankings.
All told, Amazon makes so much money charging merchants to deliver the wares they sell through the platform that Amazon’s own shipping is fully subsidized. In other words, Amazon gouges its merchants so much that it pays nothing to ship its own goods, which compete directly with those merchants’ goods.3
Here’s where Amazon’s attacks on its merchants’ bottom lines turn into higher prices for its customers. A merchant that pays Amazon through the nose needs to make up the money somewhere. Hypothetically, merchants could eat Amazon’s fees themselves—in other words, if Amazon wants a 10 percent fee on an item with a 20 percent margin, the seller could split the difference, and settle for a 10 percent profit.
But Amazon’s fee isn’t 10 percent. Add all the junk fees together, and an Amazon seller is being screwed out of 45 to 51 cents on every dollar it earns on the platform. Even if a merchant wanted to absorb the “Amazon tax” on your behalf, it couldn’t. Merchants just don’t make 51 percent margins.
So merchants must jack up prices, which they do. A lot. Now, you may have noticed that Amazon’s prices aren’t any higher than the prices that you pay elsewhere. There’s a good reason for that: when merchants raise their prices on Amazon, they are required to raise their prices everywhere else, even on their own direct-sales stores. This arrangement is called most-favored-nation status, and it’s key to the US Federal Trade Commission’s antitrust lawsuit against Amazon.
Let the implications of most-favored nation settle in for a moment. If Amazon is taxing merchants 45 to 51 cents on every dollar they make, and if merchants are hiking their prices everywhere their goods are sold, then it follows that you’re paying the Amazon tax no matter where you shop. Amazon has made prices go up at Target. At Walmart. At the corner mom-and-pop hardware store. At the manufacturer’s own website.
Then there’s Amazon’s “search” product. The quotation marks around search are there for the purpose of expressing withering sarcasm, because Amazon’s “search” product isn’t about search at all. Amazon makes $38 billion every year charging merchants for search placement. When you search for a product on Amazon, the top results aren’t the best matches—they’re the matches that pay the highest bribes to Amazon to be at the top of the list. On average, the first result in an Amazon search is 29 percent more expensive than the best result for your search. Click any of the top four links on the top of your screen, and you’ll pay an average of 25 percent more than you would for your best match. On average, that best match is located seventeen places down in an Amazon search result.
The researchers Rory Van Loo and Nikita Aggarwal call this “Amazon’s pricing paradox.”4 Amazon gets to insist that it has the lowest prices in the business, but no one can find those prices. Instead, we all pay a massive Amazon tax every time we shop there, and the merchants we buy from are paying an Amazon tax, too.
That means that, on average, the stuff at the top of an Amazon search results page is bad. It’s low-quality, high-priced junk. Even when you’re buying a known quantity, like a specific brand of AA batteries, the top item will usually be more expensive than the items lower down on the page—the ones without the splashy banners advertising “Our Pick” or “Top Choice.” The Amazon smile logo gets a lot more sinister when it appears next to a top search result that costs 29 percent more than the best match for your query, thanks to Amazon’s $38-billion-a-year paid search placement.
Not that you can find lower prices through anything as simple as sorting your search results by price. The merchants that dominate the search listings will play games with quantity to have the result with the lowest price, even if the price per unit is much higher. For example, a four-pack of AAs priced at $3.99 is more expensive per battery than a sixteen-pack priced at $10 (i.e., $1.00 versus $0.63), but sort-by-lowest-price will bury the better deal on the third or fourth page of results.
This is only the beginning. Amazon has clawed back value from buyers and sellers in so many, many more ways. It underinvests in anti-fraud, so the top-scoring items with the highest user ratings are often terrible but are garlanded with (paid) rave reviews. Merchants with high-quality offerings are faced with two bad options: either they sink to the bottom of the rankings, or they cheat, too. If they do cheat, they’ll have to raise the prices of their merchandise in order to pay for the specialized fraud-as-a-service scum who gin up all those fake reviews. Then, if they get caught, they’ll be banished from Amazon and either go bust or have to start all over again under a new business name.
But for Amazon, all of this is fine. This is how its system works, its flywheel. Amazon makes money when you are satisfied, and it makes money when you’re furious. The costs are borne by sellers, and by you. Why would the company invest in fighting fraud under those circumstances?
That’s also why Amazon puts so little effort into policing rotten sellers—and why so many of the “brands” on Amazon are consonant-heavy nonsense strings, seemingly generated at random by fly-by-nights that pop up and disappear and then pop up again under a new random name.
This is end-stage enshittification. Amazon locked in its customers and then squeeeeezed, counting on a few good, desperate sellers to keep the system goin’. Then, it clawed value away from its good sellers, leaving behind bad sellers that are a further source of misery for us.
Now Amazon is in the terminal stage of enshittification. We’re all still stuck to the platform, but we get less and less value out of it. And because we’re all still there on Amazon, buying Prime and starting (and ending) our purchase planning with Amazon’s enshittified search results, the merchants who rely on selling to us are stuck there, too, earning less and less from every sale.
The platform has turned into a pile of shit, and we’re at the bottom of it.
Case Study: iPhone
Stage One: Good to Users
It wasn’t merely Steve Jobs’s legendary “reality distortion field.” The iPhone really was a revolutionary product. It built on the elegance of the iPod, a device that “just worked.” Plug a new iPod into your computer, and in a few seconds all the music on your laptop would be mirrored into a pocket-sized gadget, along with your playlists and ratings. The iPhone extended that easy synchronization to email, calendars, and a host of other utility features that were easier to use and more powerful than those of its rivals, like BlackBerry and Android.
