Creative Destruction

March 7, 2007

Exciting New Market Opportunities

Filed under: Content-lite,Economics — Brutus @ 12:10 am

I’m not to most rabid consumer there is. I don’t expect something for nothing. But sometimes I have to pause and wonder about how craven some business models are. For instance, I blogged before about how it used to be a standard service for gas stations to provide a free air hose to customers — even those who might not be purchasing anything, such as a teenage bicyclist. (Advertising on air machines just adds insult to the whole affair.) Software companies that charge fees for assistance installing and debugging their products annoy me, too. And although they don’t make money at it, the endless voice trees one has to navigate to get to a real customer service agent (often overseas, natch) irritate the bejebus out of me. They’re using up my time without accomplishing anything.

So it was with some disgust that I learned that airports are now making money off of pay-per-use electrical plugs. Profit is king, apparently. Now, admittedly, there are a lot more folks these days plugging in, what with cell phones, laptops, iPods, etc., all of which need charging. And I suppose that the few stray outlets available to visitors to airport, bus, and train terminals have the potential to cause considerable problems in the mad scramble to recharge. But still, does every market really have to be cornered? Doesn’t the public good or customer service mean anything anymore, that a little bit of goodwill might be worth the expense?

28 Comments »

  1. The flip side is that a number of businesses are considering offering plugs for electric vehicles to recharge for free, in places where electric vehicles are available.

    Comment by ohwilleke — March 7, 2007 @ 12:38 pm | Reply

  2. Whenever I hear someone say, “Now, I’m not sexist or anything, but …” I have a pretty good clue what I’m about to hear. So it was with little surprise that I read Brutus to say “I don’t expect something for nothing….” immediately before I read him to bemoan the loss of an opportunity to get something for nothing.

    Every foregone opportunity to earn money is a subsidy. We used to let businesses use the land, water and air as their private junkyards; now we charge people for the privilege of dumping solid waste, emitting S02, etc. Sure, those people preferred the old system. Too damn bad. The FCC used to give transmission bandwidth away for free; now we auction it off. Sure, the people who hoped to get it free are bummed. Too damn bad. We used to let ranchers graze on public fields and corporations extract natural resources from public lands at little or no cost. And under the current administration we still do. Under the next administration, we won’t. And it’ll be too damn bad.

    Why exactly should we expect taxpayers to subsidize iPod users in airports?

    I’m intrigued by how social norms change, especially around behavior that used to be regarded as free. We get people to expend energy recycling materials that they used to dispose of without effort; it seems to be working. I-Tunes created a vehicle for people to pay for music that people previously got for free; it seems to be working. Financially-strapped hospitals that have historically handed out crutches, bandages, etc., are now creating kiosks to sell these things; it seems to be working.

    So I’m not at all dismayed to see airports charging for electricity, or parking, or carts, or food. Let the people who benefit from the service pay for the service, and reduce the subsidies borne by those who don’t.

    Comment by nobody.really — March 7, 2007 @ 1:48 pm | Reply

  3. Nobody.really, why do you hate the people?

    Comment by Robert — March 7, 2007 @ 2:13 pm | Reply

  4. I don’t hate the people. I hate their freedom.

    Comment by nobody.really — March 7, 2007 @ 4:23 pm | Reply

  5. And America.

    And puppies.

    You sicken me, sir. You sicken me!

    Comment by Robert — March 7, 2007 @ 4:27 pm | Reply

  6. Oh crap, does EVERYBODY know about the puppy incident?

    Look, the damn dog kept wiggling about, and the Vaseline made everything slippery. The web site said that rubber gloves would help, but it never said I was supposed to wear them on my hands. And given how skimpy those Jr. High cheerleader outfits were, how was I supposed to know that they were carrying cell phones — let alone phones with digital video cameras?

    Besides, it was only ONE TIME. Like I’m sure this sort of thing never happened to you.

    Fine then. If you wanna subsidize electricity for puppies at airports, go ahead.

    Comment by nobody.really — March 7, 2007 @ 5:51 pm | Reply

  7. Let’s compromise: Free electricity for anyone who wants to electrocute a puppy at an airport.

    The funds for the program will be administered by an enormous Washington-based bureaucracy whose administrative employees will each, at least once per fiscal quarter, shout “you want to fight the government? I am the government!” at cowed airport employees who have failed to correctly file form KJR-302-402(a)-VII (short form), “Request for Puppy-Related Electricity Cost Reimbursement”.

    It’s a plan we can all live with.

    Well, other than the puppies.

    Comment by Robert — March 7, 2007 @ 5:58 pm | Reply

  8. nobody.really wrote:

    I have a pretty good clue what I’m about to hear. So it was with little surprise that I read Brutus to say “I don’t expect something for nothing….”

    OK, I’m guilty of that. Mea culpa. But you go on to emphasize my other point, that everything is becoming commodified. The air hose and electrical plug examples are just that: examples of a wider phenomenon where every bit of life and experience is gradually being sectioned off and sold.

    In the course of a summer, I give a lot of free concerts in the park, most of which I’m not paid for. I’m willing to give a good portion of that away for free. If I (and others with whom I perform) were to cravenly insist on being paid, neither would I perform much nor would ther be concerts for folks to attend. That’s the way it points, and every little step in that direction (you cite several examples) poses a problem for me.

    Comment by Brutus — March 7, 2007 @ 9:03 pm | Reply

  9. Fair enough.

    But why do you give the free concerts? I suspect YOU receive pleasure from doing so; otherwise, I expect you wouldn’t do it. In contrast, what motivates airports to provide electricity for iPod users? I suspect it ain’t for the pleasure of the airport.

    So if music be the food of love, play on. But if electricity be the food of iPods, either pony up the cash or go listen to the free concert in the park.

    Comment by nobody.really — March 8, 2007 @ 12:32 am | Reply

  10. Why exactly should we expect taxpayers to subsidize iPod users in airports?

    Your airports are state owned?

    Comment by Daran — March 8, 2007 @ 7:47 am | Reply

  11. Idea proposed just to see what people will do with it: Electricity is food for electronics. Electronics are sources of information. Information is so critical for life in our society that being deprived of it for the period of time that the average person spends hanging around in an airport waiting for homeland security to be done with them and/or the airline to get its act together and get the airplane off is a violation of civil rights. Therefore, electricity is a basic need and the government needs to ensure its availability. (Warning: I’m not sure this argument works…it’s to play with, not to take literally.)

    Nobody.really: You took the ketamine yourself instead of giving it to the hund, didn’t you? And you probably forgot to use an obsidian blade. Amateurs. It’s amazing that Cthulu ever gets a chance to arise and wreck havoc.

    Comment by Dianne — March 8, 2007 @ 12:40 pm | Reply

  12. nobody.really writes:

    But why do you give the free concerts? I suspect YOU receive pleasure from doing so; otherwise, I expect you wouldn’t do it. In contrast, what motivates airports to provide electricity for iPod users? I suspect it ain’t for the pleasure of the airport.

    I suspect YOU misunderstand the nature of public performance. Notwithstanding whatever enjoyment an audience might derive from it, for the performers, it’s work. It’s not all applause, flowers, personal gratification, and pleasure, it’s work — lots more in fact than is remunerated by the pittance paid for most free park concerts. Concerts where performers are paid nothing is charity work.

    If I were concertizing 100 days out of the year, the number of performances where the intrinsic value of the performance was worth all the effort could be counted on one hand. If musicians working for the public good were paid equivalent to attorneys (based purely on time spent), we would have six-figure incomes. Instead, typical rank and file musicians eke out a living working office jobs and playing nights and weekends.

    Motivation for that will have to come in another post.

    Comment by Brutus — March 8, 2007 @ 1:25 pm | Reply

  13. Why exactly should we expect taxpayers to subsidize iPod users in airports?

    Your airports are state owned?

    I think so, generally. But the issue is the same regardless. Why should airport owners – public or private – subsidize iPod owners?

    Now if barriers to entry in the airport business limited the power of the market to discipline airport operators, arguably government might regulate certain aspects of airport operations just as government regulates utilities. (Dianne hints at this possibility.) But again, this dynamic would exist whether or not the airport was state owned. We’re still left with the question: Why should we transfer wealth from someone else’s pocket into iPod users’ pockets?

    You took the ketamine yourself instead of giving it to the hund, didn’t you? And you probably forgot to use an obsidian blade. Amateurs. It’s amazing that Cthulu ever gets a chance to arise and wreck havoc.

    Couldn’t have said it better myself. Couldn’t have said it worse, either. Upon reflection, let’s just say I couldn’t have said it myself. And don’t intend to.

    I suspect YOU misunderstand the nature of public performance. Notwithstanding whatever enjoyment an audience might derive from it, for the performers, it’s work. It’s not all applause, flowers, personal gratification, and pleasure, it’s work — lots more in fact than is remunerated by the pittance paid for most free park concerts…. Motivation for that will have to come in another post.

    You are doubtless correct that I am ignorant of your motivations. Let me detail the state of my ignorance.

    Because I expect stories of “the starving artist” would tend to discourage people from pursuing artistic careers, I surmise people are lured into those careers because of 1) the lottery effect and 2) intrinsic reward. The “lottery effect” leads people to pursue a course of action with a low chance of extrinsic reward in the hope of becoming one of the famous, highly-compensated few. Intrinsic value means that people simply derive satisfaction from their art which offsets the lack of extrinsic reward.

    To be sure, many things that are intrinsically rewarding in small doses become drudgery over time. I suspect it is the rare person who does not experience declining intrinsic rewards from their work eventually. Many careers provide increasing extrinsic rewards to compensate. Among artists, however, I suspect the point at which intrinsic rewards are declining is also the point at which the hopes of “winning the lottery” are also declining; I would not be surprised to learn that extrinsic rewards do not keep pace. If I recall correctly, concert musicians have the lowest job satisfaction of any career choice.

    Anyway, I look forward to your future post regarding your motivation.

    Comment by nobody.really — March 8, 2007 @ 2:59 pm | Reply

  14. N.R, the same thing that Brutus says about public performances in the park can be said about blogging. How many of us in the ‘sphere recieve any compensation for our work? Three percent? Maybe five? The vast majority of us unsung, pajama-wearing political prognosticators see zilch from our labors of love. (Yes, I’m still in my pajamas. It’s my day off. Sue.) And of those that do get something out of the deal, it tends to be barely enough to cover server fees and DNS re-registration with maybe enough to buy a book after a steep Amazon discount. Only the blogging lottery-winners like Mousalitas and Marshall are able to turn their labor into something financially satisfying.

    Then again, what extrinsic value does being polite? Saying hello? Greeting your new neighbor? Playing with a dog? Combining tee times at the country club? Do not all of these efforts also take from a valuable commodity known as time?

    To me, this becomes the same factor. On a daily basis, we do things because they are “right” and “good” and “friendly” and other positive notions due to the intrinsic value attached to it. And it costs us that constantly metered time on the clock.

    Airports, on the other hand, seem to be going down the captive-audience principle of providing: Where else can they go? So charge them for it!

    Why should airport owners – public or private – subsidize iPod owners?

    Why should anything be “subsidized” on that model? Light fixtures? Bathrooms? Diaper-changing counters? Chairs? (Wow. This is an amazingly simple topic to take into Reductio Ad Absurdum Land, isn’t it?) Then again, there’s also a landing fee, plus terminal rental fees, that the airlines pay to the airports so that those services are already provided for the good of the airline’s customers, which then comes out of the pockets of the travelers themselves as part of their ticket price.

    Why could not electrical outlets be considered as part-and-parcel of the services provided by the airport due to the frequency of business travelers who use their laptops and other electronic peripherals over their entire business-related trip? And should the costs of providing those services increase, so must the terminal rental fees and landing fees be increased, which increases the cost to the consumer via the ticket price.

    You seem to be focused on the iPod-related issue. What about a Blackberry? Laptop? Cell phone? These are all peripherals that can be plugged directly into a wall socket to recharge, unlike the newer iPods, which can only be recharged via the USB hub, thus needing the additional power-drain of a laptop.

    Comment by Off Colfax — March 8, 2007 @ 10:20 pm | Reply

  15. nobody.really (quoting me):

    Your airports are state owned?

    I think so, generally.

    I’ll take no more shit, then, from Americans telling me that Britain is a socialist country. Our major airports are privately owned.

    Comment by Daran — March 9, 2007 @ 1:28 am | Reply

  16. N.R, the same thing that Brutus says about public performances in the park can be said about blogging.

    Exactly. The original meaning of “amateur” is someone to acts for the love of it (“amour”). Ideally we would all be amateurs in everything we do, whether or not we also get paid. Thus I speculate that Brutus is an amateur — whether or not he is also a professional.

    Comment by nobody.really — March 9, 2007 @ 12:31 pm | Reply

  17. Why should airport owners – public or private – subsidize iPod owners?

    Why should anything be “subsidized” on that model? Light fixtures? Bathrooms? Diaper-changing counters? Chairs? (Wow. This is an amazingly simple topic to take into Reductio Ad Absurdum Land, isn’t it?) Then again, there’s also a landing fee, plus terminal rental fees, that the airlines pay to the airports so that those services are already provided for the good of the airline’s customers, which then comes out of the pockets of the travelers themselves as part of their ticket price.

    Why could not electrical outlets be considered as part-and-parcel of the services provided by the airport due to the frequency of business travelers who use their laptops and other electronic peripherals over their entire business-related trip?

    Good question! This is the central question of “rate design”: how to optimally design prices.

    Classical economic analysis assumed that the supply and demand of each good or service is independent of other goods and services, with prices being set at the good’s marginal cost. In “Optimal Departures from Marginal Cost Pricing” (1970), economists Baumol and Bradford noted how issues of “bi-products,” “co-products,” etc., and the cross-elasticities of demand for these products, complicate the analysis considerably. And ultimately, nearly any product can be understood as a collection of sub-products. You can buy bluejeans at K-Mart, or you can buy virtually identical bluejeans + image at Old Navy; if you value the image Old Navy presents, then the Old Navy’s advertising campaign is arguably part of the product.

    To what extent should products be “unbundled,” such that consumers can purchase only those features they desire and not the rest? The decision is influence by both practical limits and strategic factors. McDonalds refuses to sell me half a hamburger – that is, I can’t buy half a hamburger unbundled from the other half. In taking this position, McDonalds runs the risk that I will simply buy no hamburger at all. Why do they choose to run that risk? Maybe it would be too expensive to cater to my desires. Or maybe it’s a calculated move to increase sales, guessing that I’ll simply agree to buy the whole hamburger even if I only want half.

    Where monopolies are concerned, the strategic factor is pretty obvious. In the US, AT&T used to provide local phone service + operator service + phone + listing in the directory + …. If you didn’t want to pay for any of these services, that was your choice, but you wouldn’t get phone service. It was one package, one price, take it or leave it. Similar dynamics governed rail, trucking, airlines, cable, deliveries, electricity, gas stations, natural gas, banks, stock brokers, real estate, travel agencies, etc. Over time the US market has unbundled services in all these industries.

    So, should airports charge for the use of chairs? Trains charge people differently depending on whether you want a chair or a bed. Short-haul passenger ferries charge differently depending on whether you want an assigned seat or want to simply stroll around and sit on benches when they become available. So I see no conceptual reason why airports couldn’t charge people for seats. The airport would need to make that decision based on practical and strategic considerations.

    Should the costs of providing seats be recovered from airlines, who will pass the costs on as they see fit? Or spread among all ticket holders per capita? Per ticket? Or in proportion to ticket price? Or as a surcharge on people who fit the demographic profile of people who use seats? Or only on seatholders themselves? And if so, should it be a one-time fee or an hourly fee? Ooo, there is no end to the fun variations on these questions!

    But these questions spring from the fundamental realization that there are no “free” seats. Airports expend resources to provide those seats; and there aren’t always enough seats to go around. There needs to be some mechanism for recovering the costs, and for allocating the seats. Someone must choose what that mechanism will be, even if only by default. It is merely your awareness of the costs, not the costs themselves, that is in doubt.

    Then again, what extrinsic value does being polite? Saying hello? Greeting your new neighbor? Playing with a dog? Combining tee times at the country club? Do not all of these efforts also take from a valuable commodity known as time?

    To me, this becomes the same factor. On a daily basis, we do things because they are “right” and “good” and “friendly” and other positive notions due to the intrinsic value attached to it. And it costs us that constantly metered time on the clock.

    Another good question! Now we move into the world of Habits of the Heart and Bowling Alone.

    So, what are the costs involved, and where are they paid? Much of the cost of being polite is not great. Saying hello to your neighbor is generally not expensive. And where do you get paid? Why, generally your neighbor says hello to you. So there’s an exchange. The exchange is not really of words; rather, it is in building a relationship of mutual … what, exactly?

    That’s ambiguous. In exchanging greetings, you imply at a minimum that you are on speaking terms. You may even imply a kind of mutual aid pact; we’re watching out for each other. This is sometimes called “social capital.” Think of it as a kind of “overhead cost” for maintaining civilization – a cost not associated with any specific productive activity, but incurred to enable all other productive activities to occur.

    Overhead costs are a big challenge for unbundling – how do we recover costs that are not associated with any specific good or service people buy? The marginal cost of connecting a wind-powered electric generator to the electric grid may be small. The overhead cost of the electric grid is huge. When we talk about the low cost of wind power, should we be considering the overhead costs of transmitting that power or not?

    So it is with households. The 1950s featured a much more standardized household, with women staying home, raising kids, and building the social capital. But our society doesn’t put a price on that. So now we’ve unbundled household services and “squeezed the fat out of the system.” Who provides the social capital now?

    Taken to its extreme, you get the stereotype of New York City: Ambitious people hurrying to achieve (paid) objectives. Who stops to greet their neighbor and say hi as they pass? Where is the assumption of mutual aid? I suspect this stereotype is more fiction than fact, but it illustrates the idea that overhead such as social capital is not worthless, only priceless.

    So, should we regard providing electricity to people in airports a part of our social capital, a cost to be incurred and spread throughout society as a gesture of mutual aid? I’m not persuaded, but I guess it’s a plausible argument.

    Comment by nobody.really — March 9, 2007 @ 12:33 pm | Reply

  18. I’ll take no more shit, then, from Americans telling me that Britain is a socialist country.

    No worries, bloke. We’ve got plenty of other reasons for giving you shit.

    Nice teeth, by the way.

    Comment by nobody.really — March 9, 2007 @ 12:59 pm | Reply

  19. Heaven help nobody.really’s wife (current or future) when he brings his transactional analysis to bear on his marriage.

    Comment by Brutus — March 9, 2007 @ 1:48 pm | Reply

  20. Hasn’t Britain largely de-socialized? Thatcher and all that? You still have the trainwreck of the NHS, but that’s cool, we have the (literal) trainwreck of our gross overregulation of railroads.

    Comment by Robert — March 9, 2007 @ 2:02 pm | Reply

  21. Hey, I spent good money to buy that airport (or stock in the company that owns it or runs it) with the express intention of wringing every red cent from it. Hell, I’ll not only fire people that can’t figure out how to make more money with the place I’ll have ‘em brought up on criminal fraud charges if they’re motivated by anything other than making more money for me, the owner.

    Goodwill? Of course. But they better be able to show me that they’d loose more business than they’d gain if they start charging for chairs and bathrooms. We already charge more for comfy chairs. (Admiral’s lounge etc.) maybe if we make the normal chairs less comfortable…Hmmm, I wonder how much more we can wring from o’hare before people book from midway or Milwaukee?

    Also, since there are now more people looking to plug in than there are available plugs we needed a way to ration a scarce resource. We thought about a sign up sheet but that the thought about a sign up sheet with first come first served. Than we thought about using FF miles. Than we decided to put in coin operation and if it’s popular enough we can use the revenue to pay for the cost of additional outlets so more people can plug in.

    Comment by joe — March 14, 2007 @ 10:53 am | Reply

  22. You go Joe! Sue anybody that isn’t making money for you on your capital investment! It’s your god-given right to make more money with your money, even if that means wringing whomever with whatever to get it done. Damn right. Hell yes. Make em sit on the floor if they won’t pay for 15-minute increments in the chairs. Better yet, hang them upside-down and shake the coins from their pockets. You can always find a way.

    Comment by Brutus — March 15, 2007 @ 5:12 pm | Reply

  23. Brutus,
    Stripped of sarcasm my argument was 3 fold
    1. The people who start a business, or by shares in an ongoing concern, do so expressly to make a profit. (Exceptions are rare and specific.)
    2. Professional managers have a legal obligation to maximize shareholder value within the bounds of the law. They work for the shareholders. In many cases shareholders are pensions funds that pay for the retirement of a lot of hard working people. (I feel this last point needs to be further expanded. Too many managers run companies as if the company existed to make them rich.)
    3. There needs to be a way to ration scarcity. If there is more demand for electrical power than outlets there needs to be a way to ration it. If we use price than the profits can be used to fund the development of further resources. i.e. if the outlets make money they’ll put in more outlets.

    Your point seems to be that capitalism is bad.

    Comment by Joe — March 15, 2007 @ 9:26 pm | Reply

  24. Joe, I understand and mostly agree with your points 1 and 2. My concern is when the objectives, obligations, and mechanisms that make capitalism work are taken too far, the results are maniacal and distorted. It’s happening more and more that companies are less content to create products and provide services and compete equitably in pursuit of profitability. Instead, many act criminally, compete unfairly, and expect profits to be exhorbitant. There is too much greed and fraud and lack of ethics and failure to abide by any social contract other than what maximized profit. How many widespread scandals have we had at both the corporate and personal level in the last twenty years to demonstrate my concern? Lots.

    Regarding your third point, I don’t think electricity is exactly a scarce item. Maybe too few electrical plugs are available for travellers in depots and terminals, but that is not such a difficult fix that I would call it scarcity, either. Exploiting that market opportunity instead of providing a service a reasonable person might expect (like chairs to sit in) as part of the travel experience is what I’m drawing attention to.

    I don’t think that capitalism is wholly bad. But I do believe that many, many bad things are accomplished through capitalism because the mechanisms that make it work — especially when it is poorly regulated or restrained — encourage excess.

    Comment by Brutus — March 17, 2007 @ 11:09 am | Reply

  25. Regarding your third point, I don’t think electricity is exactly a scarce item. Maybe too few electrical plugs are available for travellers in depots and terminals, but that is not such a difficult fix that I would call it scarcity, either. Exploiting that market opportunity instead of providing a service a reasonable person might expect (like chairs to sit in) as part of the travel experience is what I’m drawing attention to.

    It’s the scarcity of plugs that I’m referring to. I disagree that they owe me that and I think it’s fine to charger for it. Putting in the plug and providing the juice is going to take money. It’ll come from one of three places.
    1. Lower Margins as ‘goodwill’ (this I think is your desired outcome.)
    2. The pocket of the person that actually uses it.
    3. The pocket of everyone as the overhead increases and this cost is passed along.

    My preference is number 2.

    Comment by joe — March 18, 2007 @ 3:36 pm | Reply

  26. Wups my preference is actually number one (something for nothing for me) but I don’t think it’ll happen and i’d rather see 2 than three

    Comment by Joe — March 18, 2007 @ 9:18 pm | Reply

  27. Ha! A propo to, well, damn near everything we’ve dicussed, check this out.

    Comment by nobody.really — March 21, 2007 @ 12:28 pm | Reply

  28. A propo to everything, check this out.

    Comment by nobody.really — March 21, 2007 @ 3:20 pm | Reply


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