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It boggles the mind every time I read about one of these "unlimited for life with a fixed initial cost" products. In almost every case that I can recall it's b

• raverbashing 15y ago
  This serves as a lesson to startups as well Never offer something for a lifetime Even if the cost of supporting it "forever" is minimal (that is, the complete opposite of what AA has done) Things like GMail, for example. You may be tempted to do it. Don't Always put in your terms of use a provision of termination. Of course, be reasonable, for example, allow the user to backup the data given a reasonable timeframe (e.g. Google Health)
  • natep 15y ago
    Makes me a bit worried for pinboard.io. It's not free, which puts it in a better position than its competition, IMO, but it's a 1 time only payment. I hear they're profitable now, though, and have vowed to not go away like delicious did.
    • ConstantineXVI 15y ago
      Pinboard(.in) has a $25/yr "pro" level; believe he's said the pro service is enough to keep it running for everyone.
    • NickFitz 15y ago
      I just bookmarked this very article in delicious.
    • deleted 15y ago
      [deleted]
  • morganpyne 15y ago
    Heh, perhaps some Joyent staff may have something to contribute to this conversation. They offered a "lifetime" hosting deal with shell access a while ago for a one-off fee, and I have heard that this is becoming a bit of a millstone for them. Certainly my brothers 'lifetime' account with them is not getting a lot of love and feels a bit like it's being left to rot on decrepit hardware. I wonder would they do it again with the benefit of hindsight, or did it serve their purpose?
    • dmpk2k 15y ago
      Upgrading users is one of those "damned if you do, damned if you don't" scenarios. If you do: some users are unhappy about old hardware. If you don't: some users are unhappy about uptime and changing software. Joyent's CEO was on HN a while back and mentioned that if users on the old FreeBSD boxes want to run on the new illumos boxes, they should send an email to support.
  • nostrademons 15y ago
• JumpCrisscross 15y ago
  The lesson here is not that lifetime-for-fixed-up-front is inherently idiotic but that it must be sensibly discounted. AA discounting at the anomalous 1981 rates is akin to American public pensions assuming the stock markets will throw 8% at them ad infinitum. An example of a lifetime-for-fixed-cost product that works is the annuity. Even British consols, perpetuities which pay out forever, are seen as a smart financing method (zero roll-over risk) because they were sensibly priced.
  • wtn 15y ago
    The British War Loan is not a comparable that supports your point, because it is callable.
    • JumpCrisscross 15y ago
      Fair point, though it stands to be mentioned that this would require an Act of Parliament and hasn't happened since consols were first offered in 1751 (though the coupon was reduced through 1903).
  • derekp7 15y ago
    If the purchase price of these tickets were 350,000, and if the typical purchaser was in his 30's at the time of purchase, that gives an annuity of almost $2000 a month, assuming an average lifespan of 70's and a 6% interest (yeah, that may be a tad bit high on the interest assumed, but remember this was the 80's). So in effect, these passengers are paying 2G a month for their high end "bus pass". And if they travel once a week, that is $500 per ticket. I really don't think AA is losing much money here. Edit: This also explains why these tickets didn't sell recently at $3 million a piece -- for that money, again assuming a 40 year annuity but a 3% interest rate, you can buy a $1200 ticket twice a week.
    • dantheman 15y ago
      You get 2 first class tickets for 350,000 and no costs for cancellations and rebookings. That's an incredible service. Booking 3 flights because you're not sure when you want to leave or whatever -- that's pretty huge.
• Bamafan 15y ago
  "4. Life memberships are silly. If they want to attract the business flyers they were talking about it should be an annual charge." I'm not sure an annual charge would necessarily fix the situation for heavy users. It's very similar to the situation of cable and phone companies losing money on heavy users of their service.
  • fpgeek 15y ago
    An annual charge would give the company the freedom to adjust the terms on an annual basis in response to problems that are discovered. For a high-end product targeted at a very small market and a small part of the overall customer base, I think that makes a big difference. The problem cable and phone companies have is that lots of people sign up for unlimited plans when available because of the mental transaction costs of doing anything else. That makes adjusting terms to manage heavy users harder because those adjustments also affect a large slice of customers where the unlimited deal is working as designed.
  • bergie 15y ago
    Deutsche Bahn (German railways) provides this option, you can buy a "100% discount" yearly card to either first or second class. But these are quite expensive. Just hop on the next train: BahnCard 100 offers 12 months travel on all DB services. It only costs 3,990 EUR for standard class and 6,690 EUR for 1st class. They also have 25% and 50% discount cards available. The 50% is quite a good deal, as I think I paid mine back within the first week of getting it. http://www.bahn.com/i/view/DEU/en/prices/germany/bahncard.shtml http://www.bahn.com/i/view/DEU/en/prices/germany/bahncard.sh...
    • excuse-me 15y ago
      Railways have an even lower marginal cost than planes. DB would rather have a person travelling in the seat for 'free' and encourage ridership than have it empty. Airlines used to think this way - the marginal fuel cost for a seat was something like $10 (essentially it only costs you at takeoff). But then airport improvement fees, security fees, faa upgrade fees meant that they were paying out $100s for passengers who were travelling for free.
• jamesaguilar 15y ago
  I'm not sure if it's such a bad idea in this case though. I don't know how much the marginal cost of a seat on a flight to London is, but it's a hell of a lot less than retail. Provided this handful of AAirpass customers aren't, in-and-of themselves, generating more flights that AA has to schedule, their actual sticker price to the company cannot be accounted for at retail prices.
  • moioci 15y ago
    But if the AAirpass people displace other passengers who would have paid retail and instead went to another airline, this opportunity cost should be assessed at retail.
• temphn 15y ago
  "unlimited for life with a fixed initial cost" products Interestingly, this is the same problem that bedevils Social Security and Medicare/Medicaid. Consider the change in perspective that AA underwent when it realized how much these passengers were costing the company: Rothstein, Vroom and other AAirpass holders had long been treated like royalty. Now they were targets of an investigation. The same thing happened with Medicare. For any costly program that doesn't put financial caps on utilization, cost can ultimately be capped either by queues or by various kinds of fraud charges and investigations into the users of the program. This is why we have the Stark Law and Medicare fraud investigations: http://en.wikipedia.org/wiki/Stark_Law http://en.wikipedia.org/wiki/Stark_Law http://en.wikipedia.org/wiki/Medicare_fraud http://en.wikipedia.org/wiki/Medicare_fraud Some of the asserted frauds are actually crimes. Some of them are in a gray area and arguably abusive, like Rothstein. Some are really just attempts at innovative business models. Whatever the reason, though, if you are costing the government a lot of money, you are going to get hit with a Medicare fraud investigation. It doesn't matter if it's because your product is amazing and the cost is due to organic growth. All that matters is how much money it's costing the government.
  • Mz 15y ago
    I do not know about medicare per se, but when social security was designed to support people 65 and over, I think life expectancy was around age 62. So it was designed to support a relatively small number of retirees in their extreme old age. Then people began living longer. Somewhat similarly, welfare was aimed at a tiny fraction of "the deserving poor" but was poorly worded/thought out and thus inadvertently changed the social contract and thereby actively grew the number of poor moms. At the time it was created, having a kid out of wedlock was strongly taboo. Poor single moms were thus mostly widows. The authors apparently could not imagine it becoming more socially acceptable to have children out of wedlock. I worked at bigco for five years. Similarly shortsighted wording for contracts and the like is pretty rampant from what I have seen.
    • dkrich 15y ago
      > I do not know about medicare per se, but when social security was designed to support people 65 and over, I think life expectancy was around age 62. So it was designed to support a relatively small number of retirees in their extreme old age. Then people began living longer. This is true, but the real problems with Social Security began when Lyndon Johnson combined the Social Security fund, then entirely separate, with the rest of the federal budget. Instead of maintaining a very close eye on how much money was coming in and going out for Social Security, there was no longer any urgency to keep that money around. In other words, money taken out of paychecks for Social Security was spent on everything else, and Federal income taxes were paid out as Social Security.
• willwagner 15y ago
  I don't know how TiVo feels, but I always thought their lifetime subscriptions were a good way to seed their initial customer base. Lifetime is a little misleading because it's tied to the TiVo hardware, not the lifetime of the customer, but I still think it's relevant. TiVo started with a big problem of knowing they had a product that people would love if they tried it; in that instance, getting people past a hurdle of paying of monthly costs kind of makes sense, especially if they become devoted customers who tell their friends. I'm sure it also didn't hurt their cash flow.
  • icefox 15y ago
    On the flip side I am still using my first generation tivo because I have a lifetime on it and if I get a new device I would have to buy a new lifetime subscription.
    • epc 15y ago
      I don't know what their current policy is but we've rolled our initial Tivo S1 "lifetime" subscriptions over to S2 and now one S3/Premiere Tivo. Seems to be an occasional special they do.
  • ticks 15y ago
    Even then, lifetime subscriptions were rendered useless in the UK when TiVo dropped support for the original product and teamed up with a cable company. So it was neither a lifetime subscription for the hardware nor the customer.
• chaostheory 15y ago
  I can't help but think of the deal GM struck with the unions back in the mid 20th century. Lower immediate wages for a nice retirement pension. Little did GM know about the trend of longer life spans.
  • acdha 15y ago
    Also worth noting that GM, like almost all US corporations, chose to under-fund their pension system. Assuming that most of your retirees will die early is like assuming that your stock return will average 8% annually but they've waged a successful PR campaign convincing people that this wasn't an epic managerial botch.
  • scarmig 15y ago
    Well, the people making that deal didn't have their incentives aligned with the incentives of the people on the shop floor.
  • lurker14 15y ago
    More like "lower immediate wages for someone else's problem in the future -- maybe we'll have plenty of money to pay, maybe we'll just file bankruptcy, maybe we'll get a bailout"
• losvedir 15y ago
  > It boggles the mind every time I read about one of these "unlimited for life with a fixed initial cost" products. "For life" is a particularly egregious example, but these sort of conflicting incentives are everywhere. It's one reason I've been so happy with the popularity of pay-as-you-go models in, e.g., AWS. I've always been leery of "unlimited" hosting for a monthly fee because your incentives aren't exactly aligned with the host. NearlyFreeSpeech.net, for example, highlights that fact in their marketing materials that since it's pay-per-use, the more successful your site is, the more money they make, so it's win-win. Netflix and home broadband also suffer from these problems.
  • dlitwak 15y ago
    if you do enough research, the "unlimited" hosting isn't unlimited at all. There are certain restrictions in the fine print. which is exactly what American should have done.
• ChuckMcM 15y ago
  I certainly think the frequent flyer miles thing was a mistake on the part of American Airlines (AA). But one of the things that bugs me about the article is that the 'marginal' cost of flying these folks is the same as the marginal cost of flying someone in coach, or flying someone in general. Weight * cost of gas to carry that weight + consumables such as food, tissues, Etc. So when AA argues they 'lose millions' they are really saying that if they could sell this persons First Class seat to someone else on short notice they would make more money. But that assumption glosses over the fact that folks fly First with mileage upgrades, or get 'bumped' from coach on an over sale situation, or book way in advance and pay less. Since there isn't any discussion about what the average seat price is for First Class on the same flight when no AirPass member is flying, it didn't feel like they were being particularly objective with regard to price. The fact that they could not sell AirPass + Companion for $3M (which according to them would have the owner 'ruining' AA in year 2 at this rate) seems to me to validate my feeling that they are over pricing their 'loss' here.