Clarification to post on subscription pricing and the FotF

During the session I posted yesterday I chatted with Dennis Karus of Software-Link. My intention was to have a conversation about the business model of subscription pricing that they have embraced, and not to just be a commercial for their offering.

For the most part I think I succeeded. However, we did get some questions about their offering and I allowed Dennis to answer which may have undermined the original intent.

That said, I want to state that Sage has many hosting partners who have embraced subscription-based pricing. One such partner is Gary Feldman of I-Business Network. Gary is also an occasional commenter on this blog as well.

MyOnlineMASInformation about their hosted subscription-based pricing can be found on their website.

Rethinking Unlimited Access Level Agreements

While watching Rory Sutherland’s Zeitgeist presentation for the 20th time, I was struck (finally or again) by his story about Spotify and how they have not gotten much traction with their offer of unlimited downloads per month. He suggests that they change it to some absurdly high number like 180 songs a month.

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Sutherland reasons that unlimited provides no context to the offering. As he put it, “Nobody knows what unlimited music is worth. It is a bit like asking, ‘Would you like to buy my unicorn?’”

The 180 song per month limit would give the price context in that it could be compared to iTunes at $0.99 per song. So for $9.99 a month you could enjoy $180 worth of music.

This got me to thinking.

Perhaps access level agreements should have a similar notion. Instead of saying unlimited access, perhaps it should be changed to 30 contacts (phone calls or emails) per month. Now, this would be more than anyone could possible need, and would therefore it would not be a barrier to any customer in terms of being worried about wasting a call on their particular issue. It would, however, allow them to compare it to other plans where there is a per call fee, thereby increase the perceived value of your offering.

What are your thoughts?

ET HORA LIBELLUM DELENDA EST

Profit Is NOT the Problem

I had an interesting exchange this morning with Bill Kizer, founder of the Sage Partners, Employees and Alumni Networking LinkedIn Group.

He posted, “Want to know what’s wrong with business today? The prioritization of profit over principle is built into American corporate culture.”

I disagree, at least partially.

Pursuit and prioritization of profit is not a bad thing per se. The problem occurs when the pursuit of profit is driven by an over focus on efficiency and cost reduction rather than innovation and satisfaction of customer needs and wants.

The problem comes when the question, "How are we to be profitable?" is answered primarily by saying, "We will need to cut and recover costs." Yes, short term thinking as Bill points out is part of it, but it is the loss of the entrepreneurial spirit (or as some would say – purpose) that is the real problem.

I believe all companies begin to die when more energy is spent on creation of profit through cost reduction (efficiency) than on the creation of profit through innovation for customers (effectiveness).

Yes, this is a derivative of the Eff’ing debate.

ET HORA LIBELLUM DELENDA EST

On the inanity of Elizabeth Warren’s now famous quote

Sorry my progressive friends, but Warren’s quote is nonsense. It ignores the most basic principle of a freer (not free) market – that wealth is generated on both sides of the vast overwhelming majority of transactions. Her quote implies a zero-sum thinking about the economy. It is false and I believe dangerous. It implies that everything you have done is at the expense of others. I hope none of you believe that.

Capitalism is, by definition about paying it forward. Farmers, factories, software companies, and consultants produce things (food, goods, services, and knowledge) that are of greater value to the purchaser than to the buyer. What is more, they create these things that are for the betterment of customers whom they do not even know today. In other words, they are being altruistic. Altruism being defined as “other centric.”

The roads, schools, and police to which Ms. Warren refers have been paid for, their makers have received just compensation. Where did the compensation come from – the people in the first place, but how did the government get this money? By claiming a share of the profits. In effect, Ms. Warren is claiming a double debt.

Ms. Warren while intending to  or not is also making a great limited government, public choice theory argument, namely for schools, roads, and police. If government (and it should be the local government) were ONLY using tax money for the building roads, the education of students, and the funding of police, the tax burden would be much less. Instead we bailout failing companies, start endless wars on ideas (drugs, poverty, and terrorism to name a few), and now are taking over the healthcare industry.

The US federal government is quickly becoming a large and in debt insurance company with guns.

Personally, I do not think corporations should be taxed at all. There is mounting evidence that high corporate taxes result in lower wages for workers. After all, businesses just view taxes an expense. If the budget line item for taxes is made higher, then another line on the budget has to get reduced. Often that other line is wages and salaries.

Now, I am no corporatist. I think the bailouts were a travesty of justice, but notice this was government action once again interfering with the market.

Both governments and corporations are made up of people, flawed human beings. To paraphrase Milton Freidman, is political greed somehow nobler that economic greed? At least with economic greed a) the corporations have no guns (save those than make them) therefore cannot force me to buy something (even if it “for my own good,” see the mandate provision of Obamacare) and b) if we don’t like what a company sells we can quickly vote with our wallets rather than once every two, four or six years.

Economics in One Game

Earlier this month I spoke to the Allen Area Patriots, a local Tea-Party related group with the goal of making basic economics more understandable to we (myself included) non-economists. The title of the presentation is Economics Made Simple.

This is an extended version of the material that Ron and I use during the Firm of the Future Symposium.

Part 2 of 7 is mostly the game and can be skipped without losing any major content.

For those interested I also created a follow-up reference guide as a post which includes the slides and links to source materials.

ET HORA LIBELLUM DELENDA EST

Today Is Value-Pricing Sunday

OK, not exactly, but if there were such a designation, today would be the day.

This is the Gospel read in all Roman Catholic Churches throughout the world.

Matthew 20

The Parable of the Workers in the Vineyard

1 "For the kingdom of heaven is like a landowner who went out early in the morning to hire workers for his vineyard. 2 He agreed to pay them a denarius for the day and sent them into his vineyard.

3 "About nine in the morning he went out and saw others standing in the marketplace doing nothing. 4 He told them, ‘You also go and work in my vineyard, and I will pay you whatever is right.’ 5 So they went.

"He went out again about noon and about three in the afternoon and did the same thing.6 About five in the afternoon he went out and found still others standing around. He asked them, ‘Why have you been standing here all day long doing nothing?’

7 “’Because no one has hired us,’ they answered. "He said to them, ‘You also go and work in my vineyard.’

8 "When evening came, the owner of the vineyard said to his foreman, ‘Call the workers and pay them their wages, beginning with the last ones hired and going on to the first.’

9 "The workers who were hired about five in the afternoon came and each received a denarius. 10 So when those came who were hired first, they expected to receive more. But each one of them also received a denarius. 11 When they received it, they began to grumble against the landowner. 12 ‘These who were hired last worked only one hour,’ they said, ‘and you have made them equal to us who have borne the burden of the work and the heat of the day.’

13 "But he answered one of them, ‘I am not being unfair to you, friend. Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’

16 "So the last will be first, and the first will be last."

Most interpret this as demonstrating the generous nature of God (which it certainly is), but adding an assumption (which is clearly NOT in the text) offers a more economic exegesis.

Perhaps the owner of the vineyard believed there to be a frost coming that evening which would destroy the unharvested grapes. This would make the grapes gathered later in the day of much greater value to him. Value is subjective!

What I find fascinating is that it is one of the few economics lessons in the Christian Bible – only appearing in the Gospel of Matthew. It is clearly a refutation of Marx’ Labor Theory of Value written 18 centuries early. Lastly, it is certainly classically liberal in that the owner is free to do with his money as he sees fit.

ET HORA LIBELLUM DELENDA EST

Economics Made Simple Resource Guide

Many thanks to the Allen Area Patriots for having me as a guest speaker this week. I hope they enjoyed the session.

First, here are the slides:

 

As a follow up for them, I have created a short, but deep list of resources for anyone who might want to dig a little deeper into the topic of economics.

Books

On the Web

Blogs

ET HORA LIBELLUM DELENDA EST

Digital Electric Meters and the Future of Energy Pricing

In the not too distant future, many of us will have the option of switch from our standard analog energy meters to digital ones. Along with this will come the ability (depending on the level of deregulation in your state) to purchase energy in different ways.

For example, you will be able to control the energy usage of major appliances such as air conditioners, washers, dryers, etc. This will allow you to load balance your electrical usage. You will be able to set a budget for say your air conditioner. When the price of electricity goes up, the thermostat will automatically rise so you do not spend as much.

Even better, if and when battery technology improves, you will be able to purchase more energy in the evenings at a lower price and store it for use during the day when prices are higher. It is very cool stuff.

One possible additional benefit will be to allow you to purchase you electrical energy from different sources, or at least from different plans based on provider. This would mean that you could buy a “green plan” which will tell your provider to purchase more from green or alternative sources on the grid. Cool huh?

Now, what if I told you that these green plans will cost two to three times the traditional plan. Would you opt for the green plan? Why or why not?

ET HORA LIBELLUM DELENDA EST