Value Creation vs. Value Extraction

Trick or treat?

Halloween is my favorite holiday. Fall, scary movies, and I even got married on Halloween! Last night, after dropping our toddler off at my mom’s, my wife and I celebrated our anniversary with a viewing of Psycho on the big screen. We left a bowl of candy in front of our apartment door–knowing the risk of someone taking it all was high–but were pleasantly surprised to find it mostly full when we got back.

For 10 minutes anyway.

While we changed into costume to pick up our kid–which took 10 minutes, tops–someone quietly and stealthily took the remaining ~200 pieces of candy we had. Not a single thing left. Obviously we’re not the only people to have been through this, but it did get me thinking about a different topic: value creation vs. value extraction.

In value creation, the focus is on making and providing. Maybe that’s a product or a service or a community. The goal is to be additive and–from a business perspective, anyway–the aspiration is that someone will value what you’ve created and exchange something of value for it with you. This is the foundation of a sustainable, sane economy.

Value extraction is a murkier beast. It is about taking, though the branding varies greatly. In the most legitimate cases, this “taking” is framed as a return on investment: Employee bonuses, investor returns, that kind of thing. Then there’s monetization, usually enacted after something free (or largely) free has been provided to customers in order to demonstrate value. Think ads, but also subscription tiers and fees.

Monetization can be very reasonable, but generally leads to enshittification sooner or later, i.e. putting more of the value behind more monetization gates to extract more and more. Pair this with knocking out competition via a loss leader strategy and you have a very effective technique for cornering a market.

There’s another type of value extraction though. In this one, the value extracted is more akin to a naturally-occurring resource, like oil. If you’ve seen There Will Be Blood then you know what a nasty battle this can be to lay claim to something valuable that doesn’t require direct creation–in other words to extract value from something (or someone) else.

Whoever pillaged our basket of candy extracted value for themselves at our expense and, more pertinently, at the expense of everyone else who would’ve taken some candy. They aggregated that value for one beneficiary (themselves) and if they were so inclined, they could be (and maybe are as you read this) selling that candy at a discount that, while not equal to the $100+ we spent on it, still nets them some amount of pure profit. And if they extracted and aggregated this value across many apartments and many baskets of candy, that profit would only increase (provided they can find a buyer, but that’s a separate conversation).

Does this remind you of anything not candy-related?

If you said “AI”, you’d be right. You’d also be right if you said “social media content” or “Amazon” or “the mafia” or dozens of other answers, right down to “collecting cans from people’s garbage bins”. Of course, the counterargument is that all of these also provide a service: AI chatbots, entertainment platforms, easy online shopping, “protection”, human-powered recycling, and even in my Halloween example, you could argue a reseller of stolen candy is providing candy to consumers at discounted prices.

There is a hard-to-define line however of when this “service” goes from valuable to consumers (value creation) to valuable to owners (value extraction). In my Halloween example, it’s pretty hard to argue there’s much value being created, especially since we were giving the candy away in the first place and incurred all the cost ourselves. But what about with social media? When does the extraction outweigh the value of giving consumers a platform and creators a cut of profits? How about AI? Where’s the line between the world having access to a free, very knowledgeable chatbot and hoovering up content that would’ve otherwise commanded a price–and a profit to the original creator–to make it?

In business, as with history, the line is drawn by the winners. Extract enough value (money) and you can turn it into legal, physical, PR, and every other type of protection you can think of, with the only potential x-factor being a government that refuses to be bought.

Which brings me to this: In 4 days, it will be Election Day in the US. Americans will have the opportunity to vote for the government they want to represent them and their values. And in my opinion, in this election there is a clear contrast between value creation and value extraction.

I’m not going to tell you who to vote for. But I can safely say I don’t want to turn this country into one big basket of Halloween candy for the most selfish and self-centered to take for themselves—that’s why I’ve already proudly voted for Kamala Harris and Tim Walz. If you want to see why I believe they’re the choice for value creation over value extraction, I’ve provided a summary of their policy right here for you to look at or share.

But whatever your decision, make sure to vote. There’s no telling how long you’ll still have the right to do so.