Seven Rules For Internet CEOs To Avoid Enshittification

Say That Again

from the a-few-basic-rules dept

It seems that we’ve had a rash of formerly loved internet services going down the enshittification curve. As coined (brilliantly) by Cory Doctorow, enshittification is the process by which a company gets gradually worse. As he puts it:

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.

And the progression down this curve is often driven by the (short term) demands of investors, but too often CEOs themselves embrace this curve. And, really, it’s not difficult to see how it happens.

In the early days, you’re an upstart. You’re building users and fans, and it’s the “don’t be evil” stage of an internet company’s life, where the focus is almost entirely on building users. And you do that by providing a great service, better than anything else out there (maybe even disrupting the business models of what’s out there). This excites everyone, including the media and investors who pour in money, subsidizing the company’s existence and rapid growth.

The second stage, then, is when you realize at some point all of this userbase and goodwill has to turn into some sort of business, so that often involves some “compromises” to make sure that you can actually make money. It may start innocently enough: you add in a few non-intrusive ads, or come up with some more creative business models, such as selling data from your users.

But, then the third stage comes, and the investors, who were so happy to give you that money to subsidize everything early on, start demanding their return. They need to see much more growth, and not just in the size of your userbase, but in how much money you’re able to make. You start learning acronyms like “ARPU” (average revenue per user) and such. And then you’re being measured on how much you’re increasing those metrics, which means you need to squeeze more out of each individual user, and you’re now deep within the enshittification stage, in which you’re trying to squeeze your users for more money each quarter (because now everything is judged in how well you did in the last 3 months to improve that number).

It’s happened to lots of platforms, but we’re seeing it happen in somewhat spectacular fashion with a few these days, mainly Twitter and Reddit, though I’d argue that Netflix could be included as well.

Doctorow has another sentence following the one I quoted above that is important here as well:

Then, they die.

That part doesn’t always happen. And some companies just linger on, dead company walking, for quite some time. But the main thing that the enshittification process does is open up new opportunities for new entrants to come in, and do so at the early stages of the curve, with a focus on delighting users, rather than squeezing them. And that’s where the opportunity is for the original companies to die.

Anyway, I’d like to posit seven basic rules for any internet CEO looking to avoid the enshittification death cycle. Think of these as the rules that Steve Huffman maybe should have learned years ago, rather than whatever the fuck he’s doing now.

1. Tell your investors that you’re in this for the long haul and they need to be too. This was a key part of Jeff Bezos’ success with Amazon. For years he was blatantly, almost obnoxiously, transparent with investors that he was focused on the long-term sustainability of Amazon, and he would not cut off benefits to Amazon’s customers in search of profitability. Among Wall St. folks, the oft-repeated line was “will Amazon ever make money?” When I was in business school in the 90s, a decently successful entrepreneur told me that Amazon was never going to succeed because Bezos was too focused on users, rather than profits. Instead, he suggested PointCast was the internet company that would succeed. How many people actually even remember PointCast? People forget that when Bezos introduced Amazon Prime, Wall St. flipped out, because they insisted that it would cost way too much for too little benefit. But, through it all Amazon survived (and thrived) because Bezos just kept telling investors exactly what his plan was, and never backed down, no matter what Wall St. kept saying to him.
2. Your community is everything. This is too easily forgotten, but your users are everything if you run an internet business. They’re not “the product.” They’re what makes your site useful and valuable, and often provide the best marketing you could never buy by convincing others to join and providing you with all of the best ideas on how to improve things and make your service even better for the users. The moment you’re undermining your own community, you’re beginning to spiral downward.
3. Create more value than you capture. This one is not mine, but Tim O’Reilly’s, and it’s one that constantly sticks with me. As you’re developing a business model, the best way to make sure that you’re serving your users best, and not enshittifying everything, is to constantly make sure that you’re only capturing some of the value you’re creating, and are instead putting much more out into the world, especially for your community. Your investors will push you to capture more and more of that value, but again, when you start chasing that, you’re also spiraling down the enshittification curve.
4. Empower your community, and then trust them. This may sound similar to rule number two, but it’s more about how you make the first rule a reality. Again, your own community is what’s making your service even more valuable, and helping to attract new users. So, make it easier for them to do that. Push the power to make your service better out from the service to the users themselves and watch what they do. Let them build. Let them improve your service. Let them make it work better for you. But, you have to have some trust here. If you’re focused on “Rule 3” you have to recognize that sometimes your users will create value that you don’t capture. Or even that someone else captures. But in the long run, it still flows back to you, as it makes your service that much more valuable.
5. Find ways to make money that don’t undermine the community or the experience. There are ways to do this. If you’ve built a strong community, they want you to survive. But you need to make sure that you’re creating ways to capture the part of the value you’re capturing in a manner that doesn’t harm the overall experience. Google did this in the early days with its non-intrusive contextual ads, but lost the plot on enshittification when it started sucking up as much extra data as it could to target you (and then seemed to cut off competitive routes for alternative ads to work). There are ways to monetize that don’t need to overwhelm, that don’t need to suck up every bit of data, that don’t need to rely on taking away features users relied on. Focus on adding more scarce value, and figuring out ways to charge for those new things which can’t be easily replicated.
6. Never charge for what was once free. This is a corollary to rule number five. If you’re charging for something that was once free, you’re taking away value from your community. You’re changing the nature of the bargain, and ripping away the trust that your community put in you. Instead, always look for something new that is worth paying for above and beyond what you already offered. Make it so that it’s worthwhile for people to pay, rather than acting like they need to pay you for the things they got for free until now. Give them a reason to pay gladly, don’t try to pressure them into coughing up money grudgingly.
7. Don’t insult the intelligence of your users. All too often, this is what it comes down to. When investors get on your case about how you have to squeeze more money out of each user, bad CEOs start trying to justify the clearly “bad for users” decisions that they’re making as actually being good for the users. Some, like Reddit’s Huffman, are so far gone that he just assumes that Reddit’s userbase wants him to make more money, rather than even trying to couch the borked API plans in some “it’s better for users” language. But, either way, be upfront with the community (remember, it’s the most important part of your site). If you need to make more money, rather than acting petulant about how unfair it is that you’re not making money, explain why you’re creating new services that provide new value, and why they’re priced as such. Be up front, transparent, and honest. Don’t talk down to them, and treat them as if they owe you. They don’t. They made your service what it is, and you should act accordingly.

There’s obviously a lot more to all of this, but keeping those seven principles in mind can create a path for CEOs of internet companies to continue delighting users and avoiding extreme enshittification. Of course, no one’s perfect, and every company is going to make mistakes. But if investors are pushing you to make more money now, figure out ways to do that by adding even more value to the world, rather than trying to squeeze your existing community, ripping away the things they love, and telling them you’re doing it for their own good. And, also, tell those investors that you’re doing this for the longer term health of the service, rather than just trying to get a quick buck out of the people who made your service so successful in the first place.

Filed Under: elon musk, enshittification, rules, steve huffman
Companies: amazon, google, netflix, reddit, twitter