If Your Business Model Requires An Overly Restrictive Contracts... You Have No Real Business Model

from the that's-not-satisfying-customers dept

Mon, Oct 19th 2009 9:44am — Mike Masnick

We've discussed in the past how consumers are gaining more power over companies these days (and how that's a good thing), and that leads to a separate, but also interesting observation: if your business model relies on denying customers what they want -- such as through the use of overly restrictive contracts -- your business model is in trouble. Thomas O'Toole has a good discussion about some recent lawsuits involving overly restrictive contracts that try (and usually fail) to prevent customers from doing what they really want to do. First, it discusses the recent attempt by MediaFire to stop the distribution of a Firefox extension that routes around MediaFire's ad-driven business model. Second, it discusses a legal fight between Virgin Mobile and MetroPCS over whether or not MetroPCS can legally reprogram Virgin Mobile phones to work on its network.

The thing that shines through in both instances, however, is that they involved companies who didn't rely on providing the best product for consumers, enabling them to do what they wanted -- but instead, relied on contracts with overly restrictive terms designed to prevent customers from doing what they want. As far as I'm concerned, in most cases, business models like that won't be long for this world. Consumers are increasingly fed up with bogus legal restrictions that try to prevent what the technology clearly allows. If you're trying to create a business model, the second you consider putting in ideas that inherently limit your consumers from doing what they want, you're asking for trouble. A smart business model enables more customers to do what they want, and does so in a way that makes everyone better off. While there are still companies who can get away with anti-consumer business models enforced by overly restrict contracts, it's not a long term strategy for success.

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Filed Under: business models, restrictions

18 Comments

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senshikaze (profile), 19 Oct 2009 @ 10:36am

its in the machine!
And then we enter the world of mainstream software where denying your customers is not only the norm, but they *seem* to expect it.
I am always saddened by people who look at free alternative to big name software and ask "What's wrong with it if it's free?"
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Dark Helmet (profile), 19 Oct 2009 @ 10:41am

Re: its in the machine!
I have the same saddness. I keep trying to explain to people what a joy it is to work with Open Office. I finally turned my girlfriend onto it a while back, and now she's a believer...
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Anonymous Coward, 19 Oct 2009 @ 10:59am

Re: Re: its in the machine!
OpenOffice sucks compared to MS Office.
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Designerfx (profile), 19 Oct 2009 @ 10:59am

jeez
Mike, were you reading my slashdot today? hahaha. I basically said the same thing.

Essentially, companies don't like informed consumers. As people are becoming more informed, companies aren't liking the results. Slowly, slowly is this change coming, but damn has it been a long time coming (60+ years). Lots of people are now informed consumers (significantly more than there used to be for most topics), but companies do not want anything to do with said people. This has come up time and time again.

In the 50's and 60's people expected consumers to just lap up any odd stupid crap that is sold. Finally the bar is being raised in lots of areas and the lazy companies are the first to whine (mpaa/riaa/microsoft/apple).

example. MS: "our computer is secure"
apple: "we prevent your phone from jailbreaking for your security"
mpaa/riaa: "piracy is theft/dangerous"
corn farmers of america: "network neutrality can put us out of business"
best buy: "we represent value/good products/a best buy"

The list of stuff like this from abusive companies goes so far that I think the list is growing.
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senshikaze (profile), 19 Oct 2009 @ 11:04am

Re: Re: Re: its in the machine!
you suck compared to me.

See how that works? doesn't work too well, huh? Maybe instead of making retarded statements about something you obviously know nothing about, you can actually add to the conversation. But, alas, that would require working brain cells, i'm afraid. Maybe next time.
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Hulser (profile), 19 Oct 2009 @ 11:07am

Temptation
Consumers are increasingly fed up with bogus legal restrictions that try to prevent what the technology clearly allows.

I couldn't agree more. One level of consumer frustration is with the level of technological progress. For example, George Costanza asking "When are they gonna have the flying cars, already?" That's bad enough, but at least understandable. But when you know that something is now technologically possible, but it's being restricted because of some misguided business model or IP law, it becomes exponentially more frustrating.

I think that's why all of these attempts to hold back the tide of technology are (eventually) doomed to failure. Even with the threat of legal action or having their Internet connection taken away, people know that you can have more music than any normal person in a previous generation could buy in a lifetime at their fingertips. How can you expect to have a long-term business if you're relying on people resisting such a great temptation?
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senshikaze (profile), 19 Oct 2009 @ 11:08am

Re: jeez
I was all like, "yea, this guy is right!"
Then I read this line:
"cor farmers of america: "network neutrality can put us out of business""

WTF? Googled it. read article (ars).
Going to cry in a corner now.
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Anonymous Coward, 19 Oct 2009 @ 11:43am

The best is a win-win situation. But many CEOs and marketing people interrupt it as if someone wins then you have to have a loser (and they do not want to be the loser). Companies with a win-win attitude then do better.
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John Duncan Yoyo (profile), 19 Oct 2009 @ 12:33pm

Re: Re: Re: its in the machine!
>OpenOffice sucks compared to MS Office.

It sucks to pay Microsoft for anything.
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hank mitchell, 19 Oct 2009 @ 12:38pm

especially when many business models spring from "off-label" use of the original product. Look at twitter, facebook, and myspace -- examples of how the market saw the real value of the product, even as the founders tried to stop the use of the product for anything but the original purpose - twitter for SMS friend updates, myspace for bands to upload mp3s and facebook for harvard undergrads to see what each other looked like.
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Anonymous Coward, 19 Oct 2009 @ 12:58pm

Re: Re: Re: its in the machine!
I know MS Office back and forth and back again.
Helped people for years in using it.
I have open office at home.
I would have to say damn near all users would benefit from using Open Office as opposed to MS Office. And this is primarily a cynical statement. The issue being that most users accidentally activate the advanced features of MS Office so the feature has now become an inexplicable bug. In Open office you have pretty much most of humanity wants and expects from a word processor and less features to trip on that can turn into "bugs". Sure if everyone was given in depth understanding of the world of Microsoft Office Suite and know how the ins and outs Microsoft Office is the better choice. If you are just trying to type up a document and have bullets and/or numbering Open Office is more than sufficient.
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Anonymous Coward, 19 Oct 2009 @ 1:47pm

Mike - did you schedule this post beforehand with M$?
http://www.itworld.com/personal-tech/81418/microsoft-locking-out-unauthorized-xbox-360-storag e-units
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Jorvay (profile), 19 Oct 2009 @ 1:53pm

Sounds like you've described my unsatisfactory relationship with my cell phone provider to a T. They've used the contract term as a way take advantage of me time and time again. Of course, if they'd just provided a good customer experience, I wouldn't be jumping ship when my contract is up next year.

And what's this about MS Office vs. Open Office? I have extensive proffesional experience with both (particularly spreadsheet work and document writing) and have to give OpenOffice the edge for my work. The OO spreadsheet tool in particular handles giant calculation sets much more smoothly and efficently, whithout locking me out of my computer completely while calculating.
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Griff (profile), 19 Oct 2009 @ 2:19pm

Virgin Mobile
If as I understand it, Virgin (who have made a lot of money out of doing far better at giving people what they want than most of their competitors) have a business model that allows people to pay less for the handset but pay it back in the calling charges over time, then this is a good business model. But if someone then unlocks the phone and uses it on a different network that have not had to subsidise the handset, then the business model is defeated.

Is this because Virgin (seeing that some people don't want to pay so much up front for a handset) have a BAD business model ? Is it wrong to offer cheap or free hardware and get the revenue back from the service ?

Obviously this business model needs some form of protection. They probably hoped to rely on technical protection but someone got round that so they fall back on legal protection.

This is like training as a pilot with British Airways then expecting to skip off to some other airline who pays for no training but offers higher salaries, the moment you qualify. BA would (rightfully) ask for the training costs back, as the contact you signed said they would.
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Kevin Carson, 19 Oct 2009 @ 3:38pm

Nah, MS Office Sucks
Word 2003 wasn't too bad, but 2007 is a typical Microsoft gold-plated turd. So many "features" piled on that the dashboard has to be tabbed. Open Office is simple and streamlined, and anyone who would pay $200 bucks for MS Word when they can download OO for free is a shithead.

I specifically complained to the IT person at the local public library about their switching from Word 2003 to 2007, and what an abysmal decline in quality the latter's user interface had. She replied that the decision was consistent with the "productivity software choices of corporations and other organizations across America. I told her the fact that they paid enormous amounts of money for something that was actually worse should be an object lesson in basing your decisions on what the clueless management of large organizations was doing, instead of feedback from your own user community. Never heard back from her.

MS's prime market must be clueless suits whose institutional culture meshes with that at the Whore of Redmond: they're the same people who assume something must be the best because it's a "brand name." I keep telling the IT people at the hospital where I work that they'd get a lot fewer viruses if they installed Firefox, and they look at me like I've grown a second head.
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Irate Pirate, 19 Oct 2009 @ 5:21pm

I hate stupid liscensing schemes (DRM especially).
"anyone who would pay $200 bucks for MS Word when they can download OO for free is a shithead."

That made me lol because it's so true. :-)

I have experience with both and I have to say I prefer OO. My wife has no choice at work and is forced to use MS Office, though at home she too uses OO. When she has to bring work home with her, transferring documents back and forth between MS and OO tended to be a bit of an issue. Not so anymore, at least as far as I'm aware. The only dislike I have is the Java requirement. Like .Net I would prefer not to have to install it if possible.

Regarding the Xbox 360 comment above, that is a real shame. If I didn't know any better I probably would have been one of those folks who purchased extra storage based on "most bang for my buck" and ended up screwed over for it. The Datel unit mentioned in the linked article actually sounds pretty good.

I bought an Elite after my first Xbox died, which of course was right after the warranty ended lol. If this one dies before reaching it full potential, I'll likely sell everything and get a Sony PS3. The 360's restrictive DRM is already a nuisance with Xbox Live Arcade titles. They were all purchased with my account on the old box, to which games are hardwired. If the box changes you are then forced to use the account they were purchased with. This means the wife can't play her arcade titles using her account. Totally stupid.
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Ryan, 19 Oct 2009 @ 5:34pm

Both
I have used both microsoft office and open office, and I find them both to be decent. The only problem was, of course, everyone else uses MS, so one has to save in that format every time (for transfering from home to school, work, etc.

For anyone with the money and the time to learn, Microsoft Office is the best by far, 2007 makes it so much easier and puts everything at your fingertips. This is my perspective, I am a manager in a business that does a ton of printed paper info sheets, calendars, etc, and 2007 rocks for this purpose.

For the simple student wishing to type an essay, 200 dollars certainly isnt worth it.
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elpookie (profile), 21 Oct 2009 @ 4:19am

Contract restriction and expected consumer use
Have to agree with the basic premise: overly restrictive conditions on the use of a product will either result in its non use or use in "violation " of the terms of the agreement. The problem arises not only from what is construed to be restrictive covenants on the use of the product but on the fact that attempting to read and comprehend the terms of most of the boilerplate defies most any English speaker's intelligence (or at least this one--but then, I do have my own problems in that regard). The evolution of the Terms and Conditions in most Use agreements is by what I call Frankendrafting, that is, the compilation (mashing?) of various prior Terms of Use terminology and language into one basically incomprihensible document--except when it comes to restrictions beneficial to the seller (sorry, licensor); restrictions of which there are many. Compare the "Terms of Use" agreements in most web sites with the Terms of Use in most product use agreements and you will see what I mean. My question is from J Lewis: "Why dont you say what you mean or mean what you say?" (sorry if I am misquoting.) If possible, and I mean it without laughing too much, a law should be drafted which requires the use of plain English terms and conditions on the use of the product. And yes, I recognize the inherent problems in such a proposal. But you have to start somewhere.
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