Kean Birch is director of the Institute for Technoscience and Society at York University.
A number of digital platforms have been changing their business models. Twitter and Meta are the headline examples, rolling out new subscriptions such as Twitter Blue and paid verification for Facebook and Instagram. Another example is Netflix, whose crackdown on password sharing comes with an option for a $37-plus-tax premium plan that allows sharing.
I’m of the view that these and other digital platforms are doing so because they are facing a reckoning for the dysfunctional capitalism they’ve created, and desperately scrambling around for any revenues they can generate. These platforms have bumped up against an iron ceiling inherent in their rapid-growth business models. I predict we’ll see many more subscription fees coming our way.
What’s driving these changes?
To understand what’s going on, it’s useful to examine the business model that underpins the expansion of digital platforms, and why this business model is falling apart right now. These digital platforms and many other, equally well-known ones (e.g. Uber, Doordash, TikTok, Google, Amazon) are becoming, to put it frankly, dysfunctional.
Digital platforms are driven by market growth, expanding until they dominate an entire market. They start out by offering one thing, usually a free or cheap service or product: think Google search, or your free Instagram and TikTok accounts, or low-cost “taxi” fares. Then, once they’ve come to dominate their market, they change and start charging us for every penny they can get, or monetizing our every move, to recoup the costs of their market growth.
The thing is, they know from the start that they have to change once they dominate a market – it’s baked into the business model – since their eventual success is based on being able to reap the monopoly rents they’ve sown. Revenues don’t automatically follow market dominance; they have to be generated through a transformation of the business enabled by their market dominance.
It’s the endpoint of a winner-takes-all dynamic that proves so enticing for venture capital or public market investors – whose money is behind these platforms’ rapid rises. These investors are happy to accrue significant capital gains while digital platforms expand. And when those capital gains start to slow or fall as those platforms reach the limits of their growth – there’s only one market to dominate, after all – then the digital platforms monetize their monopolies.
This winner-takes-all dynamic is spurred by the network effects these digital platforms deliberately generate – whereby more users improve the value of a service a la the internet – through the continuous enrolment of more and more users in their platforms. Platforms are able to exploit further these network effects through the mass collection of users’ data, which can be used to improve the platform or influence user behaviour. Each user becomes, effectively, a valuable asset to these platforms.
Unfortunately, the platforms have a contradictory imperative baked into their business model. They need to attract users, so they need to make their product or service popular with users; but they need to then monetize their users and, by doing so, destroy the very products and services that attracted users to their platforms in the first place.
These moves to squeeze more money from customers have been unpopular. I think my household will be cancelling Netflix this summer. I signed up for Twitter Blue, paid the new subscription fee but did not get any of the promised features for days. I don’t think I will ever sign up for Meta Blue or whatever it’s called.