by Or, alternatively, can the e-commerce leader avoid the plight that plagues all the largest digital platforms we use every day?
BOSTON — Exactly a month ago, we took a look under the hood of Wayfair’s growth engine that propelled the e-commerce platform to some heady annual earnings numbers. We said CEO Niraj Shah and CFO Kate Gulliver exuded a quiet confidence, as if they knew they had found Ali Baba’s cave and had managed to arrive with the password well before the Forty Thieves.
Much of what we found could be explained strategically as the now-proven playbook for Amazon, in particular its Prime membership program and the platform that enables it. Prominent in this playbook are the creation of a flywheel effect, tethering customers to the platform through a loyalty program, and investing heavily in tech-based infrastructure that by its size and sophistication wards off potential competitors.
If the analysis is correct, if Shah’s description of the “compounding” nature of Wayfair’s initiatives is accurate, the logical question that drives up to our door like a Prime delivery van is whether the Wayfair platform can avoid the plight that plagues all of the largest digital platforms we use every day. These platforms include Google, Apple, Meta and, perhaps most of all, Amazon, but also eBay, Uber and TikTok. This plight is popularly called “enshittification,” a concept that seeks to explain the accelerating decay of once-treasured internet companies.
This semester, I am teaching a new course, Responsible AI: Research, Writing and Content Creation, my college’s first devoted to AI as a skill set necessary for the workforce. It has been a wild ride. One of our “textbooks” has been Cory Doctorow’s Enshittification, an accessible breakdown of an era Doctorow calls the Enshittoscene. And like a disease, enshittification has, according to the author, “symptoms, a mechanism, and an epidemiology.”
Central to Doctorow’s argument is that enshittification isn’t inevitable; it is the result of specific policy decisions made by named individuals. So, Mr. Shah and Ms. Gulliver, what happens next is up to you. Can you become too big not to fail?
‘Don’t be evil’
Platforms like Wayfair operate a two-sided market, one that connects business customers and end users, in this case, home furnishings consumers. By extracting value from both sides, platforms historically have passed through three rather predictable phases of existence, according to Doctorow. First, they are good to their users (or customers). Think back to Google when its motto, “Don’t be evil,” didn’t evoke sarcastic laughter. This is a bygone era in which search was awesome. Don’t believe me? Try Kagi.com, which uses Google’s back-end search engine but without the AdSense scam that leads to less-than-neutral search rankings, paid placements, sponsorships and algorithm twiddling. Seriously, try Kagi.com and see how search used to be. It will blow your mind.
Wayfair is probably still in this first phase, giving the platform plenty of time to think through its policy decisions and their implications.
In the second phase, platforms abuse their users to make things better for their business customers. There are many examples of this, but harvesting rich data on these customers and sharing it with business “partners” tops the list. Inserting advertising into once-pristine video streaming also comes to mind. Netflix and Amazon Prime Video are already well into this phase of enshittification. Amazon just announced that starting April 10, Prime subscribers will pay $5 per month for ad-free video, up from the current $3 per month on top of their Prime subscription, and that 4K will be jerked away from Prime users not paying the additional fee. Let the enshittification begin.
In the third phase, the platforms pivot and begin abusing the business “partners” to claw back more value, leading to what at least seems inevitable, which is becoming a giant pile of shit. One of the many nuggets in Doctorow’s book is learning that Amazon makes up to 51 of the 100 cents of each and every dollar transacted on Prime. Apple, via its App Store? More than 30 cents. On every transaction. Are you enshitting me? Yes, Apple is!
Is Wayfair guilty of phase three clawing for its “sucks to be you” posture toward suppliers when Trump’s tariffs first hit? Ten months ago, Shah said Wayfair was in a good position to weather the tariff headwinds because the burden of those tariffs rests on its suppliers, not Wayfair. “We’re just a (mostly) neutral platform” is a common mantra and defense.
“There are multiple companies who participate in the value chain, and the burden of the tariff can be shared across that group,” Shah told analysts last May.
The Flywheel
On the way to becoming giant piles of shit, these platforms enjoy what is called a “network effect,” an economics term for, according to Doctorow, “a product or service that gets more valuable as it attracts more users.” Wayfair’s growth on both sides of the market benefits the other. Customers get access to ever-larger assortments and inventory; suppliers get access to an ever-widening pool of potential customers. For a fee. For an ever-growing bundle of fees.
And central to this network effect is the flywheel. As we pointed out last month, Wayfair’s loyalty program (Wayfair Rewards) costs the company some gross margin, but it saves on advertising spend, because members come back without needing to be reacquired. The company’s physical stores cost operating expenses, but they generate new customers and expand basket size in surrounding regions. Thus, each initiative feeds the others, creating a “flywheel.”
This flywheel brings in new customers, a percentage of them loyalty program members, with low prices and a large selection. Suppliers and vendors are eager to sell to this growing network of customers, an eagerness that can quickly become their business model, beholden though it might be to Wayfair’s larger ambitions. “The big benefit of multichannel is it allows suppliers to put in a broader breadth of products,” Shah explained, “which then allows us to figure out which ones are really great winners on our platform. And then suppliers can lean in and put a lot more product. We can then position it into more and more facilities, faster and faster delivery, lower and lower shipping costs, less and less damage.”
Importantly, whenever Wayfair Rewards members shop for furnishings, they almost always begin that shopping at Wayfair because they are already vested. In platform-speak, customers are “locked in,” with the loyalty program tethering customers to Wayfair. Once a customer has paid the fee, every subsequent purchase feels like recapturing that sunk cost.
“Around and around the flywheel spins,” Doctorow writes.
Big data
Also in stage three is leveraging the overview of suppliers’ (or merchants’) sales to take advantage of however the platform sees fit. Data is the currency of this new, AI-driven tech realm, and Wayfair has invested heavily. Consider the data on both consumers and business partners available to the platform at all times. Next, consider the control that knowledge gives the platform, control that sometimes manifests in “twiddling the knobs.” As Doctrow explains it, “twiddling” is the process of changing the costs, prices, recommendation weights and search rankings through automated or semiautomated means. He points to twiddling as a key driver of enshittification.
“When you search for a product on Amazon, the top results aren’t the best matches,” Doctorow writes, “they’re the matches that pay the highest bribes to Amazon to be at the top of the list.”
According to the author, Amazon makes $38 billion a year charging merchants for search placement.
“Twiddling is the how of enshittification,” he writes. “While we can all see enshittification from the outside as platforms are good to users, then to business customers, then to themselves, twiddling is the invisible thing that’s going on inside the companies. Because twiddling takes place inside the corporate black box, it’s hard to get your head around it. That’s made especially complicated because the platforms lie like crazy about what they’re doing.”
I am not accusing Wayfair of lying. And I do not wish Wayfair to enshittify.
Fortune-telling
Will Wayfair join its predecessors in the enshitternet? It’s far too early to tell. Perhaps it’s useful to ask the opposite, which is why Wayfair wouldn’t enshittify?
As Doctorow explains, platforms don’t enshittify when they can’t enshittify. They start to enshittify when they can. Wayfair isn’t yet at a place in the market where it can. But, like Amazon and Meta and the rest, Wayfair probably “would like to charge as much as possible for goods and services while spending as little as possible on … anything,” Doctorow writes, describing the major platforms. So, the key inflection point to look for is the moment Wayfair sees itself as more important than all the things that consumers do on the platform. Quarterly earnings calls almost ensure that Wayfair, like all public companies, will do all it can to create as much value on its platform as it can, but ultimately to make life better for itself and its shareholders, not consumers or suppliers. It is at that inflection point that a platform begins deliberately worsening its services because it can, extracting value from both sides. Because people value it. Because it enjoys a market-dominant position that makes alternatives less appealing and, depending on how locked in the consumers are, even practical.
“Enshittification is a game of seeking an equilibrium between how much people like the thing that locks them to the service (often, that’s other people) and how much they hate the management of that service,” Doctorow writes.
Given the epidemiology, what’s the cure to this disease? How can enshittification be halted, even reversed? Competition, of course, which is why the quiet confidence of Shah and Gulliver in claiming they have discovered how to grow regardless of the weather outside takes on a sort of dark undertone, at least for someone who has read Enshittification. Wayfair is striving to be a category killer, dominating with scale and technological prowess (and, I’m sure they would add, product).
Also part of a comprehensive “cure” is government regulation, which during this administration companies can avoid by paying up, mafia-style. The previous administration’s priority on anti-trust and monopoly-busting is but a speck in the rear-view mirror. I’m not being political; I’m stating historical facts.
For my part, I certainly hope Wayfair decides and continues to very deliberately decide to avoid platform disease and, later, decay. This industry needs successes, and it needs companies that consistently meet consumer needs and wants.
