The economic reasons for enshittification

Under capitalism, a company’s ultimate goal is to increase profits. Most people realize that there are 3 basic ways of doing this:

1. Increase revenue (develop better products, acquire more customers).

2. Decrease costs (improve production technology).

3. A combination of the above.

What most people don’t realize, is that this is a naïve, outdated view that applies only to young industries (it applied pretty much to everyone in the early stages of capitalism, because most industries were young - and this is why it is an established, widespread view).

In a mature industry, however, this is hard to do. The technology has already been perfected. Coming up with „new“ products basically means new colors, shapes, and other non-essential changes. The competition is fierce and all available customers have already been ensnared either by this company or by its competitors. Development of fundamentally new technologies and products requires a lot of capital investment, takes a lot of time, and the results are far from certain. One big mistake could end the company or reduce it to irrelevancy.

But there is a 4th way: Decrease revenue while decreasing costs even more, so that the net profit (revenue-costs) increases. Basically - provide an inferior product that is much cheaper to produce. Sure, some customers will leave in disgust. But where are they going to go? The competition is fierce and all the other companies are already doing the same shit because the other 3 methods are out of reach. And the majority of customers will remain by force of habit.

And this, folks, is why you’re observing enshittification. Products become worse and less durable. Services are becoming crappier. Tech support is becoming non-existent and replaced by mindless chatbots. One-time payment is replaced by subscriptions.

Thanks for coming to my TED talk.

The text was automatically translated from German into English. The German quotations were also translated in sense.

Equally, clever engineering that separates commodity – or core – core-functionality with value-added functionality enables companies producing Open Source software to embrace an open and collaborative developer community whilst not providing a completely free lunch for competitors. Of course, if competitors start to feed back into the project because that makes operational sense for them, they effectively become co-investors. That may not stop them from obtaining an advantage, but it helps make the relationship less unidirectional. In this manner, one of the best defence tactics against competitors gaining an unfair advantage is to co-opt them into the project through a genuinely open and meritocratic governance structure.

The text was automatically translated from German into English. The German quotations were also translated in sense.