They have shed two-thirds of their market capitalisation on average—and things could get worse. Their businesses all face the same three pitfalls
, boss of Snap, wrote in a leaked memo that the social-media company had been “punched in the face hard by 2022’s new economic reality”, he might as well have been describing America’sindex, home to many consumer-internet firms, has fallen by nearly 30% in the past 12 months; the Dow Jones Industrial Average, made up of less techie firms, is down by less than 10%. Crunchbase, a data provider, estimates that American tech firms have already shed more than 45,000 jobs this year.
On the surface, the movers, streamers and creepers—and thus their problems—look distinct. On closer inspection, though, their businesses all turn out to face the same main pitfalls: a misplaced faith in network effects, low barriers to entry and a dependence on someone else’s platform. Spotify and Netflix also tried to capitalise on network effects, as oodles of data on the listening and viewing habits of similar users promised to deliver an unbeatable product. Belief that Netflix’s trove of user information would give it a winning edge in creating content has been shattered by flops like “True Memoirs of an International Assassin”, which scored a rare 0% audience rating on Rotten Tomatoes, a review website.
The barriers to entry for the streamers are higher—Netflix and Spotify spend a lot of money making or licensing content. But they are not insurmountable, especially for deep-pocketed rivals. To fend off the challenge from Disney, which is spending a total of $30bn a year on content, Netflix has to keep splurging, too, to the tune of around $17bn a year. Like customer-acquisition costs for the movers, content costs eat into streamers’ profits. Disney’s streaming services lost $1.
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