An unpleasant aspect of the business models of digital companies is enshittification
According to James Mackreides, it is a disgrace to consumers and a danger to free markets.
Author Cory Doctorow is credited with coining the term "enshittification". It characterizes the point at which a business begins to try to trap clients in order to take money instead of trying to win them over with value.
It is a particular, predatory trend in which businesses purposefully degrade their goods in order to satisfy consumer demand for immediate financial gain. The once-loved apps get harder and harder to use. All of a sudden, the services we've been using for years are overrun with commercials, unstated costs, and pointless upgrades that don't make anything better.
In the long term, this is disastrous for investors as well as detrimental to the users of these services. The moral validity of capitalism itself is at risk due to this trend of corporate deterioration. We must address the underlying issue in order to safeguard the free market.
The rest of the article is below.
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In order to observe this, we need to examine a source of knowledge that is not part of the free market. When a trade union leader discusses corporate greed, the majority of capitalists tend to turn off. It is simple to write off attacks on parasitic middlemen by the National Union of Rail, Maritime, and Transport Workers (RMT) as class-war rhetoric. However, the union is correct regarding the RMT's campaign against Trainline.
Both Eddie Dempsey, the current head of RMT, and Mick Lynch, his predecessor, contend that Trainline has established itself as an indispensable online toll booth. It adds virtually no real value to the trip while charging customers booking fees and collecting commissions from train operators like Avanti, typically 5% per booking. What was formerly a straightforward transaction has evolved into a means of collecting rent. While senior executives receive multimillion-pound compensation packages, the service has turned into an electronic tax. Because it has established a monopoly, this is an illustration of a dominant business enjoying its success. It only needs to exist and extract; innovation is not necessary.
RMT's Mick Lynch.
Moats are turned into cages by enshittification.
According to Doctorow, "enshittification" adheres to a particular three-stage corporate decline life cycle. In the initial phase, the platform is beneficial to its users, frequently providing service subsidies to keep them. The platform shifts to being beneficial to its business clients, such as advertisers, at the expense of those initial users once the users have been captured and the competition has been eliminated. In order to maximize profits, the company turns antagonistic toward both partners and users during the last, terminal stage. It is the commercial equivalent of a strip-miner, tearing up the mountain's foundation in search of a few more ounces of profit after the easily accessible ore runs out.
This is the demise of high-functioning competition, according to Jonathan Tepper's book The Myth of Capitalism. The rot begins when businesses stop providing the best service and give up on efficiency. Instead of competing, they use "moats" that are actually just cages meant to ensnare rather than win over customers. In the process, the proper operation of the free market is disrupted. Directors of companies would naturally act in this way. Extraction increases margins and satisfies the quarterly demand for growth in the short term. However, this behavior should be concerning to long-term investors. A company typically runs out of ideas when it moves from being customer-focused to extraction-focused. It is now consuming the pie rather than cultivating it.
A company's extraction phase frequently appears to be a success story since it increases profits long before it appears to be a failure in the real world. This is the ideal time for a short-term trader because the monetization strategy is successful and margins are growing. However, a long-term investor needs to be able to tell the difference between a business that is building value and one that is abusing its reputation.
Private equity firms improved the "enshittification" strategy. The plan is to identify a brand that has built up decades of trust and exploit it until it is reduced to a hollow shell. Dr. Martens was owned by the Griggs family in Northamptonshire for fifty years. It was a company that produced excellent boots and promoted British manufacturing. Permira, a private equity firm, purchased the company from the family in 2013 for roughly £300 million. Permira used textbook extraction as a strategy, shifting production to less expensive sites in Southeast Asia, diversifying the brand into flimsy goods like inexpensive T-shirts to market the brand, and raising prices. The company's valuation skyrocketed to 3.7 billion by the time it returned to the stock market in 2021.
On paper, Permira made a huge profit. The brand had been strip-mined, in actuality. The repercussions are evident today. Although the retail price has surpassed inflation, devoted customers lament the deteriorating quality of the leather and soles, which split within months. The private equity owners made billions by taking advantage of the goodwill that had been developed over 50 years, but their legacy was diminished. They just took the value of the Griggs family's reputation and sold the leftovers to the general public, without expanding the company.
The squeeze in digital platforms happens when a service gains such dominance that it serves as a middleman between a company and its clients. Two of the top digital platforms in the UK are Auto Trader and Rightmove. When they were first introduced, they were ground-breaking instruments that allowed dealers and agents to reach more people for a small cost. However, the value-creation phase came to an end and the extraction phase started when they reached almost complete market saturation.
The average monthly fee for UK dealers to use Auto Trader is currently close to £3,000; this fee has continuously increased more quickly than inflation. The introduction of Deal Builder in 2024 caused a widespread uprising among dealers. Dealers were compelled by this feature to implement a system that charged 99 for customers to reserve stock. This meant that while Auto Trader collected the information and the fee, the dealer's inventory was essentially frozen for up to a week for a customer who might never show up. Because it knew the dealer had nowhere else to go, the platform felt secure, which made the dealer's life more difficult.
Similar to this, Rightmove is currently being sued for £1 billion for allegedly abusing its dominant position to charge exorbitant and unfair subscription fees. A platform becomes a parasite rather than an industry partner when its profit margins hit 70%, as Rightmove's have. The company is merely abusing its position to raise the price; it has ceased to innovate to make purchasing a home easier.
The deterioration of the search function is another instance of "enshittification." Amazon's value proposition was straightforward twenty years ago: the company would assist you in finding the best product at the best price. Today, Amazon has changed its focus to become a box-shipping advertising company. These days, the first few products that come up when you search for a particular product are sponsored placements rather than the best results. Regardless of the quality or cost of the product, Amazon has implemented a pay-to-play model in which the merchant with the highest payment receives the top spot.
This is intentional because it makes it more difficult and time-consuming for the customer to find what they're looking for. Customers lose because their time and trust are being exploited, while Amazon gains because it collects the fee and the merchant pays to purchase visibility. This is the extraction economy: making the product so obnoxious that the buyer must pay in time and frustration to locate it, and the seller must pay to be seen. This is what a slum-lord would do if they knew you couldn't afford to move, so they stopped fixing the plumbing.
The squeeze on subscription.
Streaming services on the internet.
Lastly, the streaming behemoths are a perfect example of the subscription squeeze. Netflix and Disney+ were popular among consumers during the initial stage of "enshittification." To drive out the previous competitors, they offered enormous libraries at low prices (RIP Blockbuster Video). The extraction process started after the user was locked in and the competition was over.
Disney+ offered everything for 7.99 per month until 2023. Access to the entire library, high definition TV and movies, and no commercials. The subsidy phase was this. Following lock-in, "enshittification" started. A tiered system was implemented in 2023. By 2024, the cost had increased by 12.5 percent to 8.99 if you wanted to continue using your advertising-free service. You had to settle for a lower-tier that was overrun with ads if you wanted to maintain the previous price.
The prices increased once more by the end of 2025. A UK customer is currently paying 9.99 per month to avoid commercials, which is almost 25% more than they were two years ago for the same service. This is the most cynical example of the extraction economy. The company is charging you more because it recognizes that you have already spent years using its products, not because the content is 25% better. It is a wager that leaving will cause more friction than paying more for less. When a company's main source of revenue growth is squeezing its current clientele because it knows they are too stuck to leave, rather than bringing in new ones with superior products, this is the clearest indication that it is in decline.
As investors, we should realize that the feast is almost over when we witness a company move from growing the pie to eating the pie. Unquestionably, the initial phases of "enshittification" can be highly stimulating for investors. When a company switches from providing customer service to mining them, the increase in profitability can push a share price to all-time highs. Investors must, however, differentiate between a terminal decline and a windfall in the long run. Businesses that recognize that customer trust is a finite resource are the most resilient.
The customer-focused culture of Costco (Nasdaq: COST) is well-known. Since 1985, its £1.50 hot dog combo has not changed. Jim Sinegal said, "If you raise the price of the fking hot dog, I will kill you," in response to his successor's suggestion to raise the price in order to preserve margins. "Work it out." This was a radical commitment to a business model that refuses to strip-mine its own fans, not about snacks.
With Wise (LSE: WISE), we witness the same commitment to the customer today. While legacy banks conceal exorbitant fees by using foreign exchange, Wise is fixated on transparency and consistently reduces prices and speeds up service to improve it. Any day, I would place a wager on a business that compounds value for its customers rather than a toll-booth value-extractor. One of the most ardent supporters of the free market, Milton Friedman, recognized the threat. A company ceases to be a part of a healthy capitalist system when it abuses monopoly power to stifle competition. Instead, it invites the very government intervention that eventually stifles enterprise.
We return to the RMT as a result. Its diagnosis is a warning that we need to pay attention to, even if we ignore its rhetoric. "Enshittification" poses a threat to capitalism's moral validity. We are giving those who might want to completely overthrow the system the ultimate weapon if we let this rot continue by rewarding it with our money. We need to make better demands if we want to maintain the freedom to invest. We need to support the builders instead of the extractors if we want to preserve capitalism.
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