Categories:
Microeconomics
I just found out that my Internet service provider sells its services on a lifetime basis. For a $300 lump-sum payment, I will never have to worry about quarterly service fees OR domain registration for my website again. Should I take this deal?
On the one hand, I am a classic absent-minded professor. Two fewer recurring cares for life would be a blessing.
On the other hand, the company’s service is already far from perfect, and the lifetime fee is non-refundable.
What do you think, Econlog readers?
READER COMMENTS
geoff
Feb 28 2006 at 3:00pm
You’re better off setting up the recurring payments for automatic debit and retaining the flexibility. I bet there’s automatic domain registration, as well.
CG
Feb 28 2006 at 3:09pm
If you pay the lifetime fee, what incentive will they have to place you anwhere but last on their customer service list? Perhaps a concern for reputation will keep them somewhat responsive, but the direct financial incentive is eliminated.
Joshua Macy
Feb 28 2006 at 3:12pm
Seems like a classic moral hazard problem to me. They’re betting that they go out of business (or the product somehow becomes obsolete and you voluntarily give it up) before they have to deliver more than $300 of services to you; you’re betting that they’re not.
Zai
Feb 28 2006 at 3:16pm
How about having people pay for the lifetime service to have you get rid of that background wallpaper đ
Gabriel Mihalache
Feb 28 2006 at 3:23pm
How much are you paying per quarter? How about the domain?
The only worry is that the site will grow beyond available space (database or file-wise). Will they allow you to upgrade the specs of your account if you outgrow it or if you want to change back-end technology?
A part of the gamble lies in that technology moves at a rapid pace and with the same money we can get GBs of traffic and storage space while 10 years ago that figures would have been measured in MBs.
Dan Hill
Feb 28 2006 at 3:29pm
Apart from trying to agree on an appropriate discount rate, we need to know the monthly payment and some estimate of how long you expect to keep that extremely ugly website (as a website designer, you make a fantasic economist)
Seriously, I had the same problem with deciding whether to take up the lifetime service offer from Tivo – it seemed risky at the time. I didn’t know if I would I like Tivo or how long will the box last. 18 months later it seems like a no-brainer. Now I have to get the economist in me to overcome the irrational consumer and forget about the monthly payments I’ve already made (sunk cost) and sign up for the lifetime deal anyway…
Zac
Feb 28 2006 at 3:34pm
I think Joshua Macy is wrong about this. They are not betting they go out of business. They’re just selling you a bundle. Marginal cost of continued service must be low, and they figure if they can get $300 and not worry about losing you as a customer (because you find a better deal, decide to become a luddite, or whatever), its worth it to them.
My recommendation, pay the lifetime service fee. As a fellow absent-minded person, I can say that I get far more than the typical value out of this sort of automation.
Matt McIntosh
Feb 28 2006 at 3:49pm
What Geoff said. If there’s a way to get the best of both worlds, do it.
Yali Friedman
Feb 28 2006 at 5:00pm
Question is, how long is a ‘lifetime.’ Depending upon your life expectancy, you might be able to get a better deal elsewhere.
That being said, I’d suggest a hybrid approach. There are many established registrars that offer long-term discounts. At a discounted cost of $5-10/yr, you could get 30-60 years for $300. That’s probably as long as you’d need a domain name for. By going with an established registrar you may end up paying a little more, or getting slightly less than a ‘lifetime’, but I’d argue that the benefits of using a pedigreed registrar pay for themselves.
Robert Schwartz
Feb 28 2006 at 5:20pm
I had a friend who bought a life time membership in the TWA Ambassador Club. Unfortunately he died before TWA did.
Alex J.
Feb 28 2006 at 5:38pm
One thing to keep in mind: If you forgo a quarterly contract for a long-term one (like for 5 years) the absent-minded problem will be magnified.
Jav
Feb 28 2006 at 6:13pm
What if the service provided remains bad/gets worse after you become a lifetime member, would you be willing to move to a different provider or would you want to make use of the 300 before you move on? (dan hill: battle of sunk costs? or am i wrong)
What are they selling you to buy your life time loyalty? In other words do you believe you will have sufficient leverage to make them attend to your complaints. I say extract a commitment to excellent service in return to your loyalty.
Steve Y.
Mar 1 2006 at 12:30am
Interesting comments, which seem to coalesce around the following issues: 1) credit risk (will the company be around for the long term?); 2) technological obsolescence (will you still want the same product or service ten years from now?); 3) financial (how does the net present value of periodic payments compare to the “lifetime” cost?) If the asset is long-lived and may even appreciate, as in the case of a house or a work of art, then financial considerations are paramount, and it generally is correct to pay upfront versus make the payments, assuming of course that you have the scratch. When the expected useful life shortens, then the decision is murkier—that is why we see some well-heeled individuals leasing rather than buying cars to avoid the hassle of owning and flipping every three years. Unless you absolutely cringe at writing checks or having your account debited each month, the only justification for buying the lifetime contract is financial. Because technological change is so rapid in this product area, leasing is likely to lead to a better outcome than buying. Caveat emptor.
Matt
Mar 1 2006 at 10:55am
My first thought:
Take it and get a lifetime of service that’s “far from perfect.”
Lord
Mar 1 2006 at 1:23pm
The company isn’t betting they will go out of business; you are betting that they will not go out of business.
Bill S
Mar 2 2006 at 9:20pm
If you take the deal, you are essentially becoming a creditor to the ISP. Like any other corporate bond holder, you should receive both interest income (in the form of discounted services) and some premium (in exchange for selling them the right to default on their debt to you). Congratulations! You are now a credit analyst! I recommend you check their balance sheet and income statement on Yahoo finance. If it looks dicey, stay away.
I took the Tivo deal a few years ago and have been very pleased. However, in a different part of the multiverse, where Tivo defaulted on me, a double of me is probably very unhappy!
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