Category Archives: Business

Automatic Charges After Free Trials: An Immoral Policy?

Last year in August, I signed up for a Student Prime membership with Amazon. There was a free trial for 6 months, after which I would be charged a yearly fee of $60.00.

I unfortunately cannot remember whether I was aware of the payment scheme (the $60 charge part) at the time. I was certainly aware of the free trial (that’s why I signed up for it!) but I don’t think I knew that after 6 months, I would be automatically charged. It’s possible Amazon made the deal clear as day, and it’s possible that it was in small font or not easily noticeable. But the point I will be making here is that, regardless of which was the case, the company policy is an immoral one.

What I think it boils down to is that a company (by the way, although I used Amazon as an example here, I think they handled my situation extremely well, giving me a refund without any issues. This is not a hate piece directed toward them, but a discussion of the policy), in having such a policy, takes advantage of its customers. There is going to be a group of people that either are unaware of the payment scheme at the time, or are aware at the time but forget to cancel the program after 6 months.While I (being in the first camp) was fortunate enough to have found out about the $60.00 charge, and motivated enough to act on it and ask for a refund, that is not the case for everyone. Some people will not notice the charge because they are not careful enough with their finances. Others who notice the charge may not ask for a refund, instead thinking they’ve made a mistake that’s too late to fix. As such, companies with this policy are taking advantage of customers who don’t really want to pay for the product.

One might argue that it’s these people’s own fault that they are being taken advantage of. I would certainly agree, but that doesn’t make the company’s choice to enact this policy a morally acceptable one. If someone leaves their door unlocked, it is not acceptable to go into their house and take their possessions. If a woman is out at night dressed meagerly in a known dangerous part of town, it does not make it okay to rape her. Likewise, just because someone does not pay enough attention to their finances, it does not make it fine for a company to take advantage of that and surreptitiously take money from them.

Another argument might run: as long as a person agreed or signed a contract with the company, such a policy is okay. But even this isn’t true. For one, there can be issues with the fine print: few customers have the time or energy to read entire terms of agreements. Secondly (since the first may not be applicable to this policy), taking advantage of a person just because they have agreed to something is not necessarily right either. If someone agrees to purchase an addictive substance from you for their consumption use, it is not necessarily moral to give it to them and then profit from their situation.

What I think companies with free trials should do instead is send an e-mail near the end of the trial period to allow the customer to decide whether he or she wants to continue the service and start paying for it. An explicit approval or disapproval at that time takes care of the problem, and it does so in an easy way: a simple click of a button.

What do you think about this? Am I missing some clear advantages of the current system that benefit customers considerably? Or is this a net-bad policy that companies need to get rid of?

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Done with My Summer Internship at Telonium

Very fun 2-3 months doing a summer internship at Telonium, a hosted phone systems provider for businesses. Basically, they provide phone systems (e.g. single business phone #, multiple lines coming in, multiple extensions for employees, and features like transferring calls, etc.) using VoIP (Voice over Internet Protocol) technology rather than typical landline services that a company like AT&T would provide.

I’m just going to plug some of the things that I worked on over the summer for future reference, and…well, I’m in marketing, so for a bit of self-loving SEO as well.

  • We worked on this great whiteboard series (titled Telonium Thursdays) throughout the summer. Making videos was probably the most fun part of the internship for me. I was in charge of writing the script, so if Alice or Alex happen to say anything you think is stupid, I’m the one to blame 🙂
  • I also worked on a number of blog posts for Telonium. The first was directed toward startups, encouraging them  to consider a proper phone number when branding themselves (just like you’d want a domain for your business email rather than using something like Gmail). The second was conjured up from looking at popular searches related to business phone systems. “Forward calls” and “transfer calls” were two particularly popular searches with low competition, so I made a post about features that highlighted call transferring and call forwarding as quintessential.
  • I was most proud of my final post though. I originally wanted to write an article about the 4 benefits of Spiderman, but I suspected I wouldn’t be allowed to put that on the Telonium blog. So I just talked about SaaS and its relationship to VoIP instead. [Hehe, in case you don’t click the link and just think I’m weird for making a joke about Spiderman (“What?? It’s a joke??), I titled that blog post “The 4 Benefits of SaaS and Your Friendly Neighborhood VoIP Provider” 😀 ]
  • We also started a contest near the end of the summer. The goal was to reach 500 followers on Twitter. If we reached this goal, we’d give away free phone service for 3 months. Unfortunately, we didn’t, but we did have other benefits, including increased attention to our company and visitors on our website.
  • Finally, we started a site for startups (this was started at the beginning of summer but I’m lazy to reorganize these bullet points in chronological order so I’m just including this parenthetical description instead) called The Startup Voice. Our goal, in terms of marketing strategy, was to create a community for Telonium, basically a path for people that would benefit from Telonium’s service to find out about the company. But I believe the website is much more than that. I genuinely think it’s useful for startups and I think it has a lot of potential to become something big, the main reason being our section called “Startup Voices.” Often, people get a kind of fictional, unrealistic view of startups from reading websites such as TechCrunch (which is not useless, by the way; I am simply claiming you don’t get the whole picture from them). So this section was created to allow entrepreneurs or really, any employees of startups, to contribute articles discussing their experiences working for a startup company. Whether that be the decisions they’ve made, good or bad, advice they may have for other startups, and/or perhaps their outlook or culture as a young firm. This is great because 1) it’s real, it’s coming from startups themselves, 2) it’s free marketing for startups, who often have to struggle to get themselves out there, and 3) it provides real benefits for aspiring or current entrepreneurs.

There are so many great things about doing an internship for a startup. Many of my friends who had internships before with larger companies have told me that they were either on Facebook all the time chatting with friends, or doing nothing because their boss was gone, etc. etc. The main point of an internship, in my opinion, isn’t to make money. It’s to build skills for yourself and relationships with others. With a startup, you’re going to get both. There was so much to do at Telonium; the other interns and I basically started marketing from the ground up. We got to try plenty of things we hadn’t done before and put on many different hats. We also were constantly around and interacting with the other (awesome) team members of the company (after all, we were all in the same room). I’m not saying you can’t have a good internship at a big company, or you’re definitely going to have a good one at a small one, but in general I think smaller companies (especially startups) are favorable for such experiences.

Conclusion paragraphs are for losers.

-Bharat

P.S. It’s been like three weeks since my last “normal” post, but hopefully I’ll get off my ass and finish up a blog about morality tomorrow (well, more like on my ass, because I’m sitting at a desk with my laptop).

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DO NOT Click the Blue Words

  • Tom Woods goes psycho and decides to post an entire half of a college-level course free on YouTube.
  • I tell startups why they should get VoIP.

Photo Credit: swisscan via Compfight cc

UPDATE:

6/18/2013 11:37 PM: Whoops, just realized Woods only uploaded half of the course to YouTube, not the entire course. Still pretty psycho if you ask me 😉

Telonium: Phone Systems for Your Small Business

The video was made using a (pretty great) free software called PowToon. PowToon uses the freemium model to generate revenue. In other words, it’s free, but if you want extra features, such as HD videos, ability to get rid of the watermark, etc., you have to pay a subscription fee. I thought $60/month for a monthly subscription was a little heavy, but if you buy a yearly one, the price drops down to $20/month, which sounds much more reasonable (I wish that was their regular price).

If you’re looking for a VoIP phone system for your business though, check out Telonium.

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Genius Marketing Strategy

Here.

SlideShare is intelligent enough not to take a position on whether the NSA should be snooping on us or not. If they(SlideShare) have certain convictions about the recent controversy, maybe morally their strategy isn’t the best way to go about it, but purely as a business decision, I think they made the right choice.

However, I don’t think it’s a general rule not to take sides on political issues when it comes to business. I’m sure there are a variety of situations where a firm can take one side or the other when their target market agrees with them. But for this particular case, slideshare made the right choice (again, purely as a business decision). Their joke has zero to do with whether a person likes or hates the NSA’s actions, and so people will find it funny regardless of what view they hold. Take this comment, for example:

“Excellent presentation. Seriously, if you’re going to plan the end of privacy and trash the concept of freedom of expression, at least make good slides!”

SlideShare has no position on the issue, yet someone extremely opinionated can see the joke and thoroughly enjoy it.

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New Startup Website: The Startup Voice

A new website for startups has just been launched, The Startup Voice. It offers curated news, blogs, etc. from all over the web, but it’s main value-adding feature is the section called “Startup Voices“. Here, startups themselves will be able to contribute blogs describing what they’re going through, any thoughts they have, and any advice they have to offer based on their current experiences, in contrast to the “Advice & Opinions” section which will include expert (those who went to the process and have already been successful) opinions as well.

If you’re interested in startups or are actively entrepreneurial, check out the website.

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The Lean Startup Will Not Fix the Economy

I’m doing a marketing internship for a startup this summer and my boss sent me an article about the “lean startup”; this is an idea I heard about before but had no real interaction with until now. The lean startup is essentially a new methodology for starting businesses. It emphasizes testing hypotheses and responding to customer feedback with iteration and pivoting over the older methodology of forming a long-term business plan with “elaborative design” and “intuition,” as Steve Blank puts it in his article, “Why the Lean Start-up Changes Everything.”

I find the methodology very appealing. Attempting to make long term predictions about human choice among many different products appears absurd to me. Even with all the flaws in empirical testing to confirm hypotheses, the lean startup seems like a better method to use in the field of business (but not economics, as I explain in this article about the minimum wage).

However, I disagree with one point Blank makes in his article, a point made often elsewhere in articles about the lean startup. It is his belief that the introduction and spread of this startup methodology will have “profound economic consequences.”

Blank writes:

A lower start-up failure rate could have profound economic consequences. Today the forces of disruption, globalization, and regulation are buffeting the economies of every country. Established industries are rapidly shedding jobs, many of which will never return. Employment growth in the 21st century will have to come from new ventures, so we all have vested interest in fostering an environment that helps them succeed, grow, and hire more workers. The creation of an innovation economy that’s driven by the rapid expansion of start-ups has never been more imperative.

Lean start-up techniques were initially designed to create fast-growing tech ventures. But I believe the concepts are equally valid for creating the Main Street small businesses that make up the bulk of the economy. If the entire universe of small business embraced them, I strongly suspect it would increase growth and efficiency, and have a direct and immediate impact on GDP and employment.

In this post, I’m going to focus on explaining my disagreement rather than trying to prove that it is correct. My view is based on Austrian economic theory, particularly Austrian business cycle theory, which I have set out in more detail elsewhere. I will explain the basics here (feel free to skip to part 5 if you already understand Austrian economics).

1)      The concept of demonstrated preference:

Mises stated that individual humans act purposefully, choosing means to attain their chosen ends. The ability of humans to choose, means that humans have preferences. They prefer, and therefore choose, one end over another, and again prefer, and therefore choose, one set of means over another. When two individuals exchange with each other, each individual is showing that he prefers one good over the other. When Jim trades his house for Simon’s 300,000 dollars, Jim is demonstrating that he prefers $300,000 over his house, and Simon is demonstrating that he prefers the house over his $300,000. This is called demonstrated preference. Every time individuals act, they demonstrate a preference, just as displayed by the exchange between Jim and Simon.

2)      Prices are predicated on demonstrated preferences:

As persons exchange, prices are formed. The price of the house in the previous exchange was 300,000. Likewise, we could say the price of a dollar was 1/300,000th of a house. As multiple men make exchanges among the same goods (houses and dollars), market prices are formed. Even most people who have never had an actual economics course have heard of supply and demand. But often they don’t understand the basis for supply and demand.

SupplyandDemand

Supply and demand curves are just a graphical representation of a group of people’s real preferences. So maybe person A would be willing to buy 1 house at a price of 330,000, and 2 houses at a price of 300,0000. Maybe person B would be willing to buy 1 house only if the price was 300,000. And so on. These preferences added together would form the demand curve, stating how many houses (quantity on the x-axis) people together would demand at such and such prices (on the y-axis). The same thing would occur for the supply curve, being the preferences of sellers added together. In other words, it would state how many houses (quantity on the x-axis) people together would be willing to supply at such and such prices (on the y-axis).

3)      The importance of the market clearing price:

Where the demand and supply curves meet and intersect is known as the market-clearing price. At this price, all buyers’ (“demanders”) and sellers’ (“suppliers”) preferences are satisfied. At any other price, there would either be more people wanting to buy than people wanting to sell, or vice versa. In other words, there would be a deficit of goods if the price was lower than the market clearing price or a surplus if the price was higher than the market clearing price. What brings it toward the market clearing price if exchanges occur at some other price? Arbitrage: the profitable reselling of goods (this isn’t that important for this post so if you don’t completely understand arbitrage, don’t worry about it).

4)      Prices function as signals:

As we said before, prices change based on preferences, but there a number of other reasons that are derivative from preferences. For example, scarcity affects prices as well (through people’s preferences). If a good becomes more scarce, (people will value the remaining units more and) its price will go up. Considering this, prices are invaluable signals to individuals participating in the economy. For example, if a piece of machinery that a producer buys to make a product becomes more scarce and goes up in price, it is a signal to producers that they must use it more sparingly. Fewer can buy it now that its price is higher and marginal producers (those who barely profited from it before the price change) are driven out of the market as they now earn losses.

5)      The government manipulates the interest rate, an invaluable price in a market economy:

When the government (and fractional reserve banking) prints money, it essentially increases the supply of loans (because they distribute this new money through the banking system by giving it out as loans), lowering the interest rate (for simplicity’s sake, the price of loans) below its free market level. This causes the business cycle. The interest rate like all prices is a signal. It represents the time preferences of individuals. If individuals want to consume more now and consume less in the future, they spend more and save less, and therefore lower the amount of money that they can loan out. By decreasing supply, this increases the interest rate. Likewise, if consumers want to consume less now and consume more in the future, they spend less and save more, and therefore increase the amount of money they can loan out. By increasing supply, this decreases the interest rate.

What happens when the government manipulates the interest rate? An exposition of complete Austrian business cycle theory goes beyond this post, but again, you can check that out here. Essentially though, now the manipulated interest rate functions as a bad signal. It does not represent the real preferences of individuals in the economy. If the interest rate is lower than what it would have been otherwise, it appears as if consumers are saving more (look at the last paragraph) when they really are not. Since the rate is cheaper, businesses can borrow more money to buy more capital goods (such as machinery; see the example in #4) to produce more goods for the future. But consumers don’t really want more goods in the future. They are spending on goods now and not saving enough money to buy those goods. As such, businesses invest in the wrong goods and start producing the wrong goods to sell at the wrong times.

Therefore, if the government does not allow price signals to work, it doesn’t matter what methodology businesses are using. They will not be able to improve the situation. If a signal is a bad signal, it doesn’t matter whether businesses are checking with it more often (as they do in the lean startup) or less often (as they do in the traditional startup methodology). In fact, if they are checking the bad signal more often, maybe they’ll make worse decisions and make the economy worse! (I say this somewhat jokingly, but certainly the reasoning is plausible)

What has to go are the structural impediments, the intervention in the economy by the government. That’s the only way the economy can recover. Then the lean startup methodology will be able to increase standards of living if it indeed is a better way of responding to consumer’s desires. But as long as the interest rate, the price representing the time preferences of individuals, is skewed, increasing the response rate to this incorrect signal will either have no effect, or at worst, be deleterious.

 

UPDATE 5/19/2013:

Two things I want to clarify about this post.

1) The word “fix” in the title might be the wrong word to use. The people I am responding to are not necessarily saying that this startup methodology will fix the economy, but they are saying it will have a noticeable effect on GDP and employment. The difference between that and fixing the economy is only one of degree. Regardless, I am disagreeing with that. I do not think it will have a significant impact in the current situation. If the structural impediments are removed, I do think it could have a significant impact on standards of living (and a common attempted measure of standards of living, GDP) and perhaps even employment, if producers are making less mistakes in judging what consumers desire.

2) A person might wonder why the interest rate is such an important signal. They might say, for example: Surely, if the price of potato chips is the price the government is manipulating, would it really have a huge impact on startups who are trying to sell different goods? Why is the interest rate any different? The reason the interest rate is so important is that it represents the time preferences of individuals. As such, any consumer decision made over time is relevant to producer decisions regarding the interest rate. If the interest rate is altered from what it should be, producer responses to supposed consumer preferences over time are now flawed. In addition, any signals correlated with the interest rate signal are flawed as well. So if a startup is looking at a slightly changed good that consumers want relative to the good they were producing, even if they’re not looking at the interest rate itself, this is still a flawed signal. As long as the consumer decision they are responding to is a decision with respect to time, the signal is flawed. There can be, of course, decisions made irrespective of time, such as if one product would never be desired, no matter what the period. But so many decisions depend on time or compare different goods with each other (often with a different period of production to make good 1 compared to good 2), more frequent producer responses to decisions irrespective of time would not have a very significant impact on GDP and employment.