Wanna feel ripped off today? Sign up for an online virtual service that charges a one-time activation fee. It’s a special feeling to hand over $35 for nothing.
I’d almost understand if there was actual work involved. Or hardware was manually set up. Or someone had to climb some stairs and walk down a few halls to flip something on.
But to charge me $35 to “activate” my account by adding a few records to a few databases, well, that feels like… You know what that feels like.
Tanner Christensen
on 27 Aug 08That’s like the $500 fee auto dealers charge for “dealer transaction fees”, which is just them using a pen to sign a paper. It’s a rip off, sure, but if people continue to pay it, why take it away?
Hartvig
on 27 Aug 08Amen. There’s a Danish company who do time checking online. As if their monthly fees wasn’t high enough, they charge you a $500 activation fee to get started. $500 to become a customer – what’s up with that. Especially when it’s fully automated. Some one at that company could really need to learn how to get real ;-)
Chris
on 27 Aug 08Or cellular companies that will charge you for a phone, a two year contract, an activation fee, and the monthly taxes and surcharges (that never get the minute breakdown that your minutes usage does).
My plan that is advertised as $70 a month in reality adds up to $100 a month. Obscene.
William Murray
on 27 Aug 08This makes me think of Ticketmaster’s “convenience” fees. What’s so convenient about forking over another $5, especially when you may be buying a ticket that only costs $10-20? And it’s not like you have many other options nowadays, unless you feel like trekking into town to a specific venue during specific hours to purchase a ticket in person.
Mitchell
on 27 Aug 08I’d have to say I feel the same exact way about ETF (early termination fees). It’s usually the customer being punished because they had the nerve to walk away from a company that treats them poorly. /end rant.
Dave B
on 27 Aug 08Ha. GotVMail.Com comes to mind.
Jake A. Smith
on 27 Aug 08@Mitchell If you’re under a contract, I can understand a termination fee. You’ve agreed to give them a certain amount of money over a certain time period and they’ve made their budget accordingly.
But yeah, an activation fee to add three rows to a database is absolutely ridiculous.
Jay
on 27 Aug 08@Willam Murray, I never though I would be in the position of defending Ticketmaster, but while the convenience fees are excessive, the concept is sound. You’re paying for the convenience of either having the tickets mailed to you or waiting for you at will-call, rather than trekking down to the venue as you described.
Brian
on 27 Aug 08Jason,
C’mon… you’ve got to be kidding me. I am a fan of your company and products… but isn’t this a little hypocritical? You said in your post… “I’d almost understand if there was actual work involved.”
How much work is involved for you each month for me personally, as I get charged for my Highrise, Basecamp and Backpack accounts?
I pay these fees gladly because your products add value to my business. You and your investors are here to make money. I and my team are here to make money. Since when is “money for nothing” a bad thing? This is the most brilliant business model in the world.
If the product adds value… then buy it… use it… and don’t bitch about it.
If the product doesn’t… then simply walk away.
Again, I am a fan… but seriously… Aren’t you too busy than to be bitching about a “fee for nothing?”
Joost Diepenmaat
on 27 Aug 08As Mr. Mark Knopfler said: “Money for Nothing, chicks for free”. But seriously, your business model is as Brian described. I respect you guys a lot, I love Getting Real. At the end it’s a customer who decides that they want to buy a product. Sometimes they make terrible choices, that’s what they call market.
Chad
on 27 Aug 08I felt the same about AT&T’s upgrade fee when I upgraded from the first gen iPhone to the 3G. Here I am extending my contract with them for another year and they charge me for it. Obscene indeed.
Tom G
on 27 Aug 08You must obviously be talking about paying for a something that you don’t think is worth $35.
Just out of curiosity, what did you pay $35 for but didn’t think it was worth it?
Ryan
on 27 Aug 08@Brian -
I think Jason (and several others at 37signals) has been clear several times that he is more than willing to pay for a service that adds value. But that’s not what he’s talking about in this instance. He’s saying an “activation fee” is ridiculous, and I have to agree.
37signals charges you and your company a monthly fee to allow you to use their service, which provides value. But, let’s say they said “before you get started, there is a $35 activation fee tacked on to your first payment, then the payments will go to the normal rate”. You’d complain hardcore about that, as you should.
Activation fees such as this are ridiculous when, like Jason said, it’s nothing more than a record in a database.
Bob
on 27 Aug 08I hate activation fees a lot, too. But isn’t this the same argument that all the “zero marginal cost” zealots use to argue that software (non-hosted) and music (recorded) should be completely free?
Sure it’s annoying, but it’s just another way to make the quoted price seem lower than it really is, kind of like using $x.99 instead of $(x+1). And following that tangent, why is gasoline the only thing (among everyday things) that is priced with an extra 0.9 cents?
Tomas
on 27 Aug 08I think Brian has a point. Jason’s post scoffs at the business model (without giving real solid arguments). It doesn’t go into the quality of the service or value added. I think the post misses the point entirely and is hardly fit for the business you run (aren’t you the advocates of making money from web services?).
JF
on 27 Aug 08How much work is involved for you each month for me personally, as I get charged for my Highrise, Basecamp and Backpack accounts?
You are paying for the products/service we provide. The price is the published price. It’s the same every month. There are no surprises or special fees this month or next month. January doesn’t cost more than February because you started in January. We don’t hit you for a one-time activation or set-up fee or cancellation fee. It’s this fee that I’m talking about in my post.
I have no problem at all paying anyone for their service. Their price is their price. If I think it’s worth it I pay it. I encourage people to charge for their product. Charging for your product is an excellent business model.
But a one-time activation fee is not the same as paying for a product. It’s an add on, a nickel and dime, an upfront cost that isn’t attached to anything. If the service costs extra to provide, work that into the regular monthly price. But hitting me right up front with an “activation fee” is, in my opinion, disingenuous. A lot of it is about perception.
Just my 2 cents.
Grant
on 27 Aug 08I’ll second @Chad’s mention of at&t’s phone upgrade price (it’s not just specific to the iPhone).
While an activation fee to become someone’s new customer is silly, even more so is when you’re an existing paying customer of a company and you get to pay them for the privilege of giving them even more money each month.
time checking online
on 28 Aug 08@Hartvig: We’re a Dutch company that do time checking online. In contrast to the company you mention, we GIVE AWAY the first month for free!
I was wondering where all those new Danish customers were coming from. ;)
sensei
on 28 Aug 08It’s all about customer perception, isn’t it? This is the realm of advertising, because what they’re really saying is… it costs money to run their business, and they require a fee for the overheads of running the business. They call it an activation fee because that’s when it’s charged – on account activation, but you’re not paying FOR activation, you’re paying for the privilege of having their service in operation.
Surely you’d understand this? You’d rather they jacked up their periodic price by three dollars, instead, right? ;-)
It’s all perception, huh.
- sensei.
J
on 28 Aug 08but you’re not paying FOR activation, you’re paying for the privilege of having their service in operation.
That’s what I’m paying for when I pay for the product. The activation fee is just another way to squeeze the customer for a few extra bucks up front.
sensei
on 28 Aug 08Here’s an example that might put a different spin on it:
Company x is a hosting company. They don’t do automated signups.
They decide they want to, so they spend $10,000 building an automated signup system.
Now, they don’t want to bill their existing customers extra for that, because they don’t get any added value out of it, but they do want to bill their new customers for it.
What are they to do?
sensei
on 28 Aug 08That’s what I’m paying for when I pay for the product. The activation fee is just another way to squeeze the customer for a few extra bucks up front.
Not at all. When you pay for the SERVICE, you’re paying for using the product. See my previous post.
Brian
on 28 Aug 08@JF
Jason, sincerely… I respect your last comments. I really mean that. I just think it’s all moot. At the end of the day… we all decide what we want to get paid… and then we lay that against what the market will bear… and that’s what we charge.
PREFACE: Jason… what I am about to type… I recognize fully that you understand… in fact… you’re the teacher and I am the student on this subject. But I am expounding to illustrate for the rest of your audience.
So… let’s say I’d like to make $1,200.00 for the first year for my services. I can do one of the following…
OPTION A: Charge $100 per month, with no activation fees (= to $1,200 per year), or…
OPTION B: Charge you $95 per month, with a $60 activation fee. (= to $1,200 for the year)
I guess my point is… why I fully agree that perhaps this company is missing an opportunity to better affect their brand and customer morale… it’s all just semantics… or should I say… smoke and mirrors. If they want $1200 for the year… they’re going to get it. It’s just a matter of how they’re packaging themselves.
You’re right… this company would probably be better off… to remove the activation fee… and instead… charge 3$ more per month… assuming the market would bear it. But in the end… it’s really just all about the bottom line.
“What’s my total cost?” “What’s my total value?” “Is it worth it?”
On a lighter note… thanks for making some really cool products. Not only do I use 3 of your products… but I’ve turned on many people to use them as well. I’ve read “Getting Real” and I’ve recommended your book to several of my friends and colleagues as well. I learned so much.
I look forward to whatever is coming up next. Best wishes.
Brian
Brian Webb
on 28 Aug 08@sensei,
Your post must have gotten posted while I was creating my last post simultaneously. I agree with you totally. At the end of the day… it’s the customer that pays for it all… the startup costs, the development costs, the maintenance costs, the administrative costs… and the profit margins that send the staff back into the economy. It’s the game in which we play…
Capitalism baby! Ya gotta love it! LOL
Brian
Brian
on 28 Aug 08Oh yeah… and one more thing. I am sure that this company is fully aware… that 99.9% of their client base is nowhere nearly as technically competent as you are Jason… and most of your audience. They fully recognize that most people have no idea how complicated this transaction is. Just another thought.
B
Phil McThomas
on 28 Aug 08Patrice from KATG.com (podcast) said it best for me:
“You want me to pay you, so I can pay you?”
J
on 28 Aug 08I think the point is that pricing has a lot to do with psychology. When you hit someone up with an extra fee as part of the first financial transaction you risk injecting a healthy dose of buyers remorse.
Peter Cooper
on 28 Aug 08But a one-time activation fee is not the same as paying for a product. It’s an add on, a nickel and dime, an upfront cost that isn’t attached to anything.
It depends if you’re going to then have to pay more to use the service on going. I suspect you did in your example, but sometimes there are “free” services (no on-going charge) but that charge an upfront fee to get on board – and that’s not a bad thing if it acts to meter the demand for the free service.
Damon
on 28 Aug 08Personally, I find activation fees annoying, but only because people tend to drop them on me without warning. However, to imply that there’s something wrong with them is wrong-headed. People pay what the think something is worth at a time when they think it’s worth it. If that’s an upfront fee plus a monthly bill, so be it. Some people prefer to actually buy their software instead of renting it.
Pricing has never had anything to do with “work” and it never will.
There is an interesting psychological dance that’s going on here, though. Somehow the monthly fee seems to be more important than it should be – and I think that’s why you see activation fees so much – it’s like they don’t count because they only happen once.
Tobias Lütke
on 28 Aug 08Jason: These activation fees actually serve a non obvious purpose: they pay “Pay per conversion” affiliate systems.
Generally those activation fees are paid in full to the lead generator through a service such as Commission Junction.
It’s a very powerful combination because it will mean that and affiliate system can replace or supplement your sales force without any major risk to the operator because there is no risk of the customer canceling after the first day. The activation fee will be charged no matter what.
By no means is it always the case but the more likely the service is to use “Pay per conversion” advertising the more likely it is that there is an activation charge. ( I’ve actually seen cases where services had activation charges only if the customers came through CJ, funny how that goes )
Nathan L. Walls
on 28 Aug 08I understand $100/mo vs $60 then $95/mo. I’d rather a company be completely transparent about what they are going to charge me. If you want to itemize, fine. But this isn’t a matter of maths. It’s perception. Or, more precisely, obfuscation. It’s particularly asinine when these handwaving fees aren’t optional.
When I book a flight, I want to know how much is going to hit my credit card, (and compare accordingly) vs. seeing airfare first then seeing all of the add-on “fees.” 9/11 fee. Departure fee, luggage fee, fuel surcharge, qualified pilot fee, etc. Thankfully, I see two numbers at Orbitz. The “airfare” and the grand total for what I need to pay to get a boarding pass.
johnrhopkins
on 28 Aug 08I’ve always enjoyed that warm and fuzzy feeling I get when I buy tickets for just about anything online, converts, plays, movies and they charge you the “convenience fee”. They should at least provide a little packet of KY with the order.
Brian Smith
on 28 Aug 08A one-time activation fee is usually better than a monthly usage fee.
David Andersen
on 28 Aug 08A one-time up front fee is a good way (from the company’s perspective) to cover costs right away, especially when there is a chance the customer could end the relationship sooner than the break-even point. This obviously wouldn’t apply to cell phone service activation fees when you are locked into a contract. An upfront fee also allows the business to promote a lower ongoing fee and that’s on what most people focus. It’s not unlike leasing a car.
Dan Grossman
on 28 Aug 08In markets where customers tend to switch providers soon, but competition forces the monthly costs to be low, an activation/setup fee is necessary just to be in business.
Look at mainstream shared web hosting.
Jesus A. Domingo
on 28 Aug 08From my experiences, if a company or business has good marketing and the product they’re selling has an upfront activation or setup fee, you’ll usually get bad service down the road. It’s usually the upfront fees and marketing that they do that keeps them up, and not for the retained customers.
Shagy
on 28 Aug 08How about Right Scale (http://www.rightscale.com)? They charge $2500 just to get started!
Robert G
on 28 Aug 08I can see the Activation Fee being used to control the perceived value of something. Sort of like joining an elite club.
greg
on 28 Aug 08The convenience charge venue’s charge is bs!
I mean … pay $x for the “convenience” of letting a machine do the work of taking care of my transaction … thus costing the business less because machines are cheap … if anything … they should knock off a few bucks for using their automated system!
Nathan L. Walls
on 28 Aug 08@greg
Some banks used to charge (and still may) a monthly fee for using a debit card at a point of sale instead of writing checks. Some charge for online banking.
Thankfully, mine doesn’t.
Brian Jones
on 28 Aug 08I think one purpose of the fees could be to prevent people from signing up for the service, then quitting, and then signing up again. etc. in a short period of time.
If it’s all virtual, this probably wouldn’t be problematic, but it could be a hassle to the accountants who have to track and manage all this signups and cancellations.
Brian.
Justin
on 28 Aug 08You have every right to feel manipulated. We want you to.
I work for a local company (which shall remain nameless). Our products are subscription based, typically around $1k per month. We often charge “setup fees” around $300.
The idea is two-fold:
1.) Our sales reps get some cost-free revenue to tack on their commision.
2.) And the decidedly more important. The customer feels “manipulated” with these service fees. YES. We want that, why? Well, if you feel manipulated with the service fee, you’ll want to negotiate its price. And you will. You’ll ask for it to be waived. Deal? Deal! Sign here.
And at the end of the process … you’ll have overlooked negotiating for the main package price, features, etc.
... I actually think it’s quite a brilliant tactic. Sure, negotiate away the bunk extra charge, just forget about what we’re charging you month-to-month. :)
Brian
on 28 Aug 08That’s funny – Ruby on Rails’ official web host – Joyent – does the same exact thing: $45 setup fee.
C
on 28 Aug 08I agree pricing is almost more of a mental game than anything else, but some of these fees are just stupid. Especially cancellation fees. It’s like kicking you in the ass as you walk out the door.
Ashley
on 29 Aug 08To be fair, 37Signals does charge money every month for “adding [, removing and updating] a few records to a few databases”, how is this actually different? Sure the setup costs SEEM like you are getting nothing for it, but if they added an extra $5 each month, it would be fine in many peoples opinion.
This doesn’t mean I agree with setup costs for nothing, but thats the sellers decision, they must feel it is needed, even with the risk of people being put off.
Keith
on 29 Aug 08There is a VAST difference between paying for a service and paying a 1 time setup or activation fee.
I don’t see why this is so controversial here…
When you pay for a 37s product you’re paying for the service. There is cost associated with maintaining servers, building in a profit to pay employees, bandwidth costs, and sacking a little away for hardware emergencies / upgrades. So while those little transactions of uploading/downloading etc. don’t have an actual cost necessarily the maintenance and hosting of the service you’re subscribed to does have an associated cost for 37s.
When you pay a 1 time setup / activation fee you’re paying for, in a digital service, for nothing. Take Weight Watchers eTools as an example. Their setup fee is ludicrous because they aren’t doing anything. Your account is ready immediately. You don’t get a call to a live person who configures your account or something. You fill out a web form and it’s done.
See the difference?
Bob Smith
on 30 Aug 08Ben
on 30 Aug 08I think people are missing something when comparing monthly usage fees at 37signals to activations fees. Brian makes what amounts to a Total Cost of Ownership argument ($1,200/year is $1,200/year) which is true if I use the product for a year. What if I only want or need it for one day (i. e. tickets)? Or I just want to use Basecamp for two months (one project)? Then customers who use the service for a shorter period of time are paying more.
I suppose you could make all sorts of customer loyalty arguments, but I would rather those be added later, than imposed up front.
Sam
on 01 Sep 08What I’d like to know is if Jason did indeed pay the activation fee. If he did, why?
Rich
on 02 Sep 08The fees he is talking about are annoying, to charge me to become your customer,,,wth. But in Canada, that is what they get away with because there is so little competition in services such as cellphones, cable, and long distance. If I lived in the States, I would probably walk away or have a much stronger position to bargain from because I could walk away to a competitor.
This discussion is closed.