The proverbial “all-you-can-eat” business model works great for some products and not-so great for others. The opportunity, of course, is to be able to transform non-viable business methods into viable one’s using social media tools and data. In this article, we explore how the AYCE model can be improved.
Netflix for the Sky
The Netflix model for movies has been touted as one of the greatest business innovations in the modern era of technology – not because it is new, but because it works. Now, consider that the AYCE model has been applied to transportation, club membership, and telecommunication (cell phone data plans), etc. Some work better than others….
I found this recent article about American Airlines experience with the AYCE model – which became their worst nightmare. In 1981, you could buy a lifetime all access pass to first class travel on United Airlines for 250,000 dollars. While touted as a good way for AA to raise a lot of quick money, it proved to have long term liabilities that far outstripped the performance of the fund raising. Today, a small carrier called Surf Air is now trying to use a subscription based system on a limited circuit using executive turboprop aircraft.
What is the comparable human behavior?
AYCE models impact human behavior in often unpredictable (read “unprofitable”) ways. We’ve seen the unlimited plan for cell phones becoming a thing of the past. Taxi drivers have not yet introduced the subscription travel plan but certain bus routes and commuter modes lend themselves to unlimited passes where an alternate single use rate and behavior record can be used as a price comparison.
I recall a wise and successful colleague in the insurance business revealed the dark truth about unlimited subscriptions. “They are like extended warranties, the only people who should actually buy extended warrantee are those who fully intend to beat the crap out of the item that they are covering”. Like gym subscriptions, low use members are needed to subsidize high use members.
Simulated Economy
Another way to simulate the effect of an unlimited prescription without leaving the business with an unmanageable long-term liability is to create an option-like instrument. The buyer would hold the right without the obligation to purchase the service at a discount during a specific period of time where behavior will be regulated by market forces.
Holding the option would be priced relatively cheap so that the buyer does not feel a deep loss for not exercising the option, yet sufficient to subsidize the activity of those who do exercise the option for discounted service. Another feature is that the option can be traded allowing holders to build a proto-economy around the asset that they possess. This would decrease the marketing costs of the provider as the price of the options floats to meet the needs of the market.
These strategies are commonplace on Wall Street but a statistical construct for their deployment on Main Street may be emerging. New “platforms” will arise which produce and aggregate data in the right format to support an options type of instrument for the trade or exchange of any number of goods and services in a non-cash environment.
Maybe the all-you-can-eat buffet of the future will resemble a cornucopia of options for assets that everyone shares. Bon Apetite.
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