The article argues that internet platforms, as two-sided markets, have consolidated due to lax competition law. This lack of discipline has led to "enshittification," where platforms extract value from users and business customers, who are locked in by high switching costs designed by the companies themselves.
Regulatory efforts have historically focused on improving platform behavior, but new laws like the EU's Digital Markets Act (DMA) aim to reduce user lock-in by mandating interoperability. This would allow users to leave a service like Facebook and still communicate with contacts who remain, thereby lowering switching costs and platform "stickiness."
The main topics covered are: the consolidation and market power of internet platforms; the concept of "enshittification" and high switching costs; and the regulatory shift from policing content to enabling competition through interoperability mandates.
The platform is the canonical form of internet business: a two-sided market that facilitates connections between end-users and business customers. Uber connects drivers with riders; Amazon and eBay connect sellers with buyers; TikTok and YouTube connect performers with audiences; social media connects people with something to say with people who want to hear it.
And yet, lax competition law has allowed companies to consolidate, cornering their markets. Consolidated sectors, meanwhile, find it easy to sing with one voice, blocking the passage of unfavorable regulation (there's still no US national privacy law) or its enforcement (the EU’s General Data Protection Regulation shows that Ireland is even more valuable as a lawless regulation haven than it ever was as a mere tax haven).
Undisciplined by competition or regulation, platforms are free to slide into “enshittification,” in which the company extracts value from both sides of the two-sided market, relying on lock-in to keep users and business customers from defecting to a rival. The year 2023 was when the platforms soured: Twitch, Reddit, Twitter, Facebook, Instagram, Google Search, and Discord all spiraled into terminal enshittification, transferring value from users to shareholders, leaving behind shambling half-dead things that were disagreeable, but un-quittable.
The secret to that un-quittability is high “switching costs”—the economists’ term for the things you have to give up to leave a service. You hate Facebook, but you love connecting with your communities, friends, and customers. They’re holding you hostage on Facebook’s behalf—and you’re holding them hostage, too. Facebook literally banks on these high switching costs: The US Federal Trade Commission’s antitrust case against Facebook revealed internal memos in which a product manager explicitly sets out to design features that “make switching costs very high for users” in order to make it “very tough for a user to switch” to a rival service.
Regulators are increasingly alive to the fact that Big Tech deliberately designs its products to impose high costs on users who have the temerity to prefer their competitors. If a company fails to offer official means for users to take their data with them, or to continue to communicate with the contacts they leave behind when they change platforms, those users have little recourse. The once-common practice of reverse-engineering a rival platform to make an unofficial, interoperable bridge—say, a tool that scrapes your Facebook, Twitter, LinkedIn, and other messages for a common inbox on a new, privacy-respecting service—have been effectively outlawed by anti-circumvention laws, patents, copyrights, and exotic contract theories like “tortious interference.”
Despite these barriers to exit that keep users tethered to bad platforms, most of the regulatory response to Big Tech has been aimed at making it better, rather than making it easier to leave. We keep making rules obliging Big Tech to police disinformation, harassment, and a host of other evils, but with the passage of the EU’s Digital Markets Act (DMA), we’re finally focusing on making Big Tech less important to its users, and thus less sticky.
The DMA lets the commission draft per-service rules to facilitate “interoperability”—connectivity—with new services. This isn’t mere data portability, or downloading a blob containing all the messages you've sent and the photos you uploaded. It’s the ability to leave a service, set up elsewhere, and resume the conversations and transactions you left behind. For example, under the DMA, it should be possible to leave Facebook and set up on a community-run Mastodon server, and continue to participate in group discussions and exchange individual messages with the people who aren’t ready to leave (yet).
In the UK, the long-overdue Digital Markets, Competition and Consumers Bill finally gives enforcement powers to the Digital Markets Unit at the Competition and Markets Authority, which has dozens of smart engineers and policy people on HMG’s payroll, all champing at the bit to turn their detailed market studies into policy. If the bill passes, they'll have broad latitude to fashion remedies for each dominant service, including interoperability mandates obliging walled gardens to install gateways for new market entrants, making it easy for users to leave without isolating themselves from important social relationships.
In the US, multiple interoperability bills with broad bipartisan support have made it out of committee, only to be denied a vote after intense lobbying by the tech sector. But if the UK and EU impose interoperability on tech firms, it won’t matter whether America’s captured legislature can't manage to add its own—users all over the world will get the benefits of interop and its incineration of switching costs.
These remedies will start to come online in 2024. I believe we will see one or more of the Big Tech platforms facing a legal requirement to facilitate their users’ departure: “Mr. Zuckerberg, tear down that wall(ed garden).”
Meridiano
