The subscription model is the new normal. Software and a host of business services now work primarily on this model.
Business service providers are increasingly under pressure from more nimble competition. Their reaction draws inspiration from the annuity contract and utilities playbooks. Early termination penalties and auto-renew clauses inserted in difficult to read contracts (“Contracts” include all types of agreements with less onerous names like “Service Agreement”). Once snared into a long contract, you certainly can be at the mercy of a “Service” provider while you are obliged to continue paying as though the service were as promised…like dealing with the employee that can’t be fired.
This has become so common, we are now experiencing what I call “The Snaring Economy”.
Types of “Snares”:
- Any contract that renews without an additional advance notice from the provider;
- Jurisdiction blockades. Large providers make sure any disputes will be settled in a forum of their choosing. Possibly where that corporation has a lot of sway;
- Service contracts longer than 6 months are frequently snares;
- Time consuming disconnection processes;
- Proprietary hardware purchased up-front or any other front-loaded payments.
Passive Snares (ongoing services that frequently become overpriced over time):
- Insurance of all kinds (review with your agent yearly)
- Phone and internet
- Rubbish removal.
Selected real examples:
- A payment processor in a western state would not assist an east coast state Attorney General in a large case of employee embezzlement. No nexus, no justice.
- Company with a substantial local presence, requiring that the legal forum is Madrid, Spain, where they also have an office. I’m guessing if someone in Madrid has a complaint, they’d be coming to Boston.
- SEO/Social Media company from California was not performing. The customer cancelled their service. 11 negative reviews appeared online within a day of cancellation. The legal forum was west coast of course. After wasting a few days on the phone, the customer was able to get the reviews removed.
- My lawyer won’t allow me to post anything about big banks (who are all wonderful).
What you can do:
- Get referred to service providers by people you trust. These will frequently have a local presence and a live person. Deal with providers who leave you informed, not confused;
- No matter how large the provider, confirm in writing if there’s a trial period within which you can cancel without obligation;
- Before signing up, call customer support and time how long it takes to get through to a person. Impute an hourly rate for your time and assume you will call 4 times. Add that amount to the service cost;
- When you do sign long term contracts, make an electronic calendar reminder at least one month ahead of with:
- Service Provider name and service
- Attach a PDF of the agreement or instructions on where to find it
- Have your attorney check the legal forum and arbitration rules if the dollar amounts are substantial.