Comments on: buy now, pay later

By: John Thacker

John Thacker — Wed, 23 Mar 2011 13:59:45 +0000

I’m impressed with your consistency. Quite a lot of people hate separate pricing in some contexts (airline fees, metered Internet access), but love the concept in other cases (a la carte cable television) and are neutral or mixed about others (subsidized handsets on contract).

Bundling creates winners and losers within different groups of consumers, and that partly (but not fully, I think) explains different reactions. Many people favor bundling when they’re a relative winner.

As regards mobile voice service, here’s the latest FCC report. Actually, the bill for mobile voice service for the overall market has gone down, ARPU from $47.23/month in 2004 to $36.98/month in 2008. The total ARPU hasn’t, because text and data has replaced that. I think it’s a dirty trick to exclude the part of the market with the most declining prices in order to argue that the non-price sensitive part of the market hasn’t decreased. I’d also argue that the increased voice minutes make it easier for more people to go without a landline, which then results in household savings on voice in one sense. (And caller pays makes it easier to get rid of a landline as well, as anyone who has called an international cellular phone and seen the different rates knows.)

That report also disputes your Dirty Trick Number 1 allegation by noting that Americans do end up using a lot more voice minutes than the rest of the world, so it’s not quite that people don’t want or use those added minutes. Perhaps you don’t, but perhaps it’s just like the behavior of people in other all-you-can-eat situations, and the majority of people are different than you.

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By: Mel

Mel — Tue, 15 Mar 2011 00:32:41 +0000

I agree with you and I wish that there was a choice. The conventional wisdom is that no one will use a service if the costs are clear, so we aren’t even given the option.
Unfortunately, I think so few people agree with us that there’s not much hope for change. For example, the all-you-can-eat buffets are always packed when my mom drags me there despite the crappy food. ]]>

By: Tom

Tom — Sun, 13 Mar 2011 21:02:39 +0000

As an example of the kind of inefficiency I dislike, consider how your bill for mobile voice service has never gotten cheaper. This is true for most segments* of the market despite the fact that those vendors have been enjoying benefits from better technology, productivity, and paid-down infrastructure investments. Instead they’ve “given” the surplus to consumers in the form of minutes they don’t actually want or use and kept the money for themselves. This, incidentally, is Dirty Trick Number 1 when corporate shills write studies about how great for consumers the US telecom landscape is.

* My impression is that the prepaid mobile resellers really have brought their prices down, both because their model necessitates it and because the people they’re selling to are probably extra price sensitive.

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By: Tom

Tom — Sun, 13 Mar 2011 20:59:08 +0000

Yeah, I do think it’s a good idea. ISPs need a lever to control network use, right? Given that reality, your choices are between price mechanisms or regulation — the latter in the form of bandwidth caps, letters about terms of service violations, and other unappealing fiats from Comcast et al.

But it seems pretty clear that Americans prefer the all-you-can-eat-buffet (but the food sucks and we might decide to throw you out whenever) model for these kinds of purchases. And even if I got my way, there are of course fixed costs associated with Comcast maintaining a line to your house and billing you for it, even if you don’t use any bits in a particular month. So realistically we’re talking about some usage cap, after which overage fees kick in (hopefully with a friendly email letting you know you’ll be paying a few dollars more if you continue to seed that Ubuntu distro this month). And in fact I think that’s the model that’s emerging.

(I also think that metered pricing tends to make the service provider’s marginal expenses more transparent to consumers, which ideally drives competition and lower prices).

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By: Eric Mill

Eric Mill — Sun, 13 Mar 2011 20:48:03 +0000

I also liked the post, but was jarred by the “metered bandwidth” analogy. You really think that’s a good idea? There’s no contract involved with my unmetered cable subscription, and, though some quick googling isn’t turning me up any studies, I feel pretty confident that any performed would show that people use a lot less bandwidth — and generate a lot less economic activity — when they feel like they have to watch what they do all the time. Similar to how people in DC are using crazy fewer bags to avoid a trivial 5 cent tax, cause now they pay attention (though in case such reduction is a good thing). ]]>

By: Tim Lee

Tim Lee — Sun, 13 Mar 2011 20:23:59 +0000

Oh, one other thing: it seems likely that the costs of running these services are low enough that companies could choose to take only modest profits, (through vanilla non-personalized advertising, say) and not turn evil. Craig’s List seems like an existence proof. The problem is that the investors who put up the money in the first place are never satisfied with only modest profits, so they push for more ambitious monetization strategies that ruin the user experience in the process.

So maybe what’s needed is a community of Mark Shuttleworth-style philanthropic angels that are willing to finance non-profit Facebook/Twitter/GMail/etc competitors in which they hold debt rather than equity. If the sites succeed they’d get their money back, but any subsequent upside would flow to users.

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By: Tom

Tom — Sun, 13 Mar 2011 20:21:44 +0000

Well, I chose them precisely because of their fuzziness: I agree that they aren’t examples of the same cost-shifting. But they *are* examples of the same aesthetic preference that I have for certain kinds of granular, contract-free transactions.

(As for whether those examples are (still) about avoiding transaction costs: we’ll have to agree to disagree — I think they’re at least to some degree about obfuscation with the intent of tricking consumers into buying more than they otherwise would).

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By: Tim Lee

Tim Lee — Sun, 13 Mar 2011 20:14:53 +0000

Good post, and I agree in general.

This is a nitpick, but I’m confused about why you chose metered bandwidth and a la carte cable as examples. Those aren’t trade-offs between paying now or paying later, they’re about economizing on transaction costs. Do you think McDonalds should charge for ketchup packets and bathroom visits?

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