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posted by janrinok on Wednesday January 25 2023, @03:02PM   Printer-friendly
from the circle-of-life dept.

https://pluralistic.net/2023/01/21/potemkin-ai/#hey-guys

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.

I call this enshittification, and it is a seemingly inevitable consequence arising from the combination of the ease of changing how a platform allocates value, combined with the nature of a "two sided market," where a platform sits between buyers and sellers, hold each hostage to the other, raking off an ever-larger share of the value that passes between them.

[...] Search Amazon for "cat beds" and the entire first screen is ads, including ads for products Amazon cloned from its own sellers, putting them out of business (third parties have to pay 45% in junk fees to Amazon, but Amazon doesn't charge itself these fees). All told, the first five screens of results for "cat bed" are 50% ads.

This is enshittification: surpluses are first directed to users; then, once they're locked in, surpluses go to suppliers; then once they're locked in, the surplus is handed to shareholders and the platform becomes a useless pile of shit. From mobile app stores to Steam, from Facebook to Twitter, this is the enshittification lifecycle.


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  • (Score: 3, Insightful) by istartedi on Wednesday January 25 2023, @05:17PM (5 children)

    by istartedi (123) on Wednesday January 25 2023, @05:17PM (#1288555) Journal

    To an economist ensconced in all the traditional theory, the notion of this cycle makes no sense. Although the "rational actor" model has been broken down lately in mainstream economics, it's probably still taught in introductory courses. If married to the misguided notion of corporate personhood, it leads economists to conclude that this shouldn't happen, that you're spouting nonsense despite such phenomena being readily apparent.

    An economist (at least in previous decades) might naively analyze the firms as "rational actors" and conclude that there was no incentive for a firm to destroy itself in this way.

    As an economic outsider, I'm under no such constraint. Corporations are not people, and even if they were, people are not rational; but in this case the people might actually be quite rational and it's the notion of corporate personhood which is a greater stumbling block to coming up with a theory to explain all this.

    To get to the heart of the matter, the individual *human beings* who comprise a firm can all be perfectly rational while destroying the firm.

    The employees are simply working jobs of course. It's the C-suite that can rationally destroy a firm for its own self interest. If squeezing customers and B2B partners for short-term quarterly bonuses and/or a golden parachute serves the C-suite, then they'll happily do so at the expense of the customers, the partners, the employees, shareholders, and bond-holders. They've got power. They'll get theirs.

    Economists need to remodel their view of firms if they haven't already--as conduits used and often abused by semi-rational actors, in order to maximize their own personal profit.

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  • (Score: 2) by JoeMerchant on Wednesday January 25 2023, @07:08PM

    by JoeMerchant (3937) on Wednesday January 25 2023, @07:08PM (#1288572)

    I worked at a (exceedingly rare) mid-sized medical device manufacturer for a while. It's a rare bird because most medical device companies start in some garage-warehouse somewhere and if they have any promise at all, they get bought out by a big player and merged into the Fortune 500 level of things. This company ended up where it was, with ~1000 employees, because it got a relatively large early stage investor who dug their heels in in the usual buyout negotiations, and when that ploy failed they ended up running the company themselves - something they were honestly rather ill equipped to do, but given who they were and where they were coming from, they didn't screw it up entirely, which is far better than the median performance delivered in that arena of growing startups to profitability.

    Point of all that background was: in their rather narrow focused management style (shifting focus periodically to whatever Wall Street told them their problem du-trimestre was), they ignored many obvious problems for a rather long time, particularly during my brief 2.5 year tenure: management bonus awards. KISS, right? Well, when you keep management bonus awards simple, you end up with stupid behaviors like: managers taking bonuses away from their reports because that makes their department more profitable on the bottom line, thus increasing the manager's own personal bonus. This was in operation at all levels of the company and had uneven results... my Director had married rich - maybe that had something to do with why he would give everyone who reported to him as much bonus as they possibly earned even if it meant his own bonus would dip by 5-10%. Other departments weren't so lucky and their managers would be so crass as to first change the rules for earning bonuses too near to the end of the quarter for any of their reports to actually earn a bonus, then they'd throw the suggested "morale boosting" party at their home where they'd do things like mention that the new billiards table was paid for by their recent quarterly bonus... not the greatest morale booster I've ever encountered.

    Simple lack of enough "games theory" being applied to the bonus structure rules when created, followed by the lassie-faire attitude of "Well, we're making money right? Why change things?" Really, "games theory" does explain most of economics, but you have to factor in all the things that are important to the 8 billion+ actors in the equation, and for many of them just getting more money isn't the primary motivator.

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  • (Score: -1, Flamebait) by khallow on Wednesday January 25 2023, @07:38PM

    by khallow (3766) Subscriber Badge on Wednesday January 25 2023, @07:38PM (#1288579) Journal
    My bet is every bit of your whining has been common knowledge for a century. But then it's a straw man economist pushing on the rational actor model levers. They never learn anything. Pah on them! PAH!
  • (Score: 2) by tangomargarine on Wednesday January 25 2023, @07:57PM

    by tangomargarine (667) on Wednesday January 25 2023, @07:57PM (#1288585)

    Corporations are not people, and even if they were, people are not rational; but in this case the people might actually be quite rational and it's the notion of corporate personhood which is a greater stumbling block to coming up with a theory to explain all this.

    To get to the heart of the matter, the individual *human beings* who comprise a firm can all be perfectly rational while destroying the firm.

    Edwards : Why the big secret? People are smart. They can handle it.

    Kay : A person is smart. People are dumb, panicky, dangerous animals and you know it.

    --
    "Is that really true?" "I just spent the last hour telling you to think for yourself! Didn't you hear anything I said?"
  • (Score: 0) by Anonymous Coward on Thursday January 26 2023, @02:44AM (1 child)

    by Anonymous Coward on Thursday January 26 2023, @02:44AM (#1288639)

    From a companion article [techdirt.com]:

    But Wall Street and the Friedman doctrine never stop screaming for more. You must “maximize” your profits for shareholders in that short term window, even if it means you’re going to destroy your shareholders in the long term. And thus, you see any excess value as “money left on the table,” or money that you need to take.

    The legacy copyright industry is the classic example of this. We’ve provided plenty of examples over they years, but back when the record labels were struggling to figure out how to adapt to the internet, every few years some new solution came along, like music-based video games (e.g., Guitar Hero), and they’d be crazy successful, and make everyone lots of money… and then the old record label execs would come in and scream about how they should be getting all that money [techdirt.com], eventually killing the golden goose that was suddenly giving them all this free money for doing nothing.

    And, thus, that last leg of the enshittification curve tends to be when these legacy industries refuse to play nice with the wider ecosystem (often the ones enabling your overall business to grow) and seek to capture all the value for themselves, without realizing that this is how companies die.

    Of course, one recent example of this is Elon killing off third party Twitter apps [techdirt.com]. While no one has officially admitted to it, basically everyone is saying it’s because those apps didn’t show ads to users, and Elon is so desperate for ad revenue [techdirt.com], he figured he should kill off those apps to “force” users onto his enshittified apps instead.

    But, of course, all it’s really doing is driving not just many of the Twitter power users away, but also shutting down the developers who were actually doing more to make Twitter even more useful. In trying to grab more of the pie, Elon is closing off the ability to grow the pie much bigger.

    • (Score: 2) by istartedi on Thursday January 26 2023, @09:03AM

      by istartedi (123) on Thursday January 26 2023, @09:03AM (#1288684) Journal

      This is part of it, and emphasizes the irrationality of the actors rather than the fallacy of corporate personhood. Spock: "To hunt a species to extinction is not logical". That's exactly what happens though. It's all too common for people to maximize short-run profit at the expense of ongoing revenue. The only way we've ever pulled it back from the brink is regulation, and even that doesn't always work. At least regulated hunting is somewhat of a success story. I'm not sure how we could apply that model to tech companies... A license to acquire, and an annual bag limit on companies, LOL.

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