Why Does the Subsidized Hardware Model Bother Me So Much?

If you give me the option of watching an ad-supported movie on TV for free, or spending $5 to watch it commercial free on pay per view, I'll pay the $5 every time.

Why? Because I find ads to be sufficiently annoying or intrusive that I perceive a loss off more than $5 in utility by watching the ad-supported version. Maybe that perception is illusory, but it is there nonetheless.

Strange thing is, in this case, although I agree with Joshua - I'd pay $50 extra for an ad-free Kindle - I have watched ad-supported movies on TV, even when I already own the DVD. The DVD player is connected to the same TV, in the same room. I could just have put it in, and watched the movie without breaks (or, with breaks when I felt like pressing pause), at the same time, on the same screen, with the same comfortable place to sit. But for some reason... I didn't. I even thought about it at the time, and actually decided against watching the DVD. I thought at the time that this was a silly and irrational decision. I just can't explain it, beyond this little niggling thought in the back of my head that having breaks forced upon me would give me an excuse to go get a coffee or something, whereas if there were no breaks, I'd have to think about whether I wanted to press pause and get a coffee or not. The brain is a strange thing...

Agree. I have done the exact same thing myself and couldn't rationalize it. Something deep inside brain ...

For me it was the convenience that it was already playing so I didn't have to do the "work" of finding the DVD, pressing play, and watching a much better version than the shortened, choppy, t.v. ad-filled one already on. Now that I've cut the cable cord entirely, I still can't understand my foolish former self.

It's interesting that you say "Maybe it’s the idea of somehow not holding title to the property free and clear; there’s a condition put on it that governs your use so the
psychological benefits of ownership are some how encumbered?". Kindle books are licensed instead of owned and Amazon will revoke access (as the ironic 1984 incident showed). Similarly, Steam licenses games access instead of sells it. How do you reconcile your embrace of Steam apps/Kindle books and dislike of the Kindle with special offers?

Relevant (making the point that "unfairness", for example in the form of subsidized hardware, is another way of saying economic moat):

http://ben-evans.com/benedictevans/2014/4/19/unfairness-or-getting-something-for-nothing

Also, couldn't you buy the ad-supported Kindle in the store and then "unlock" it to remove the ads with a purchase through the Kindle?

This was the right answer, haha! The market is inefficient. There is a mechanism through which you can disable advertisements on a subsidized Kindle through the payment of a one-time fee. I hadn't considered it.

The ads on the Kindle are nothing like ads you need to watch on youtube, or an ad-walled web site, where you have to wait and watch the ad before you can get to your content.
On Kindle, they don't get into your way at all. They are displayed when the device is turned off.

I could afford the non-ad version, but I decided that it did not give me any plus.

In fact, some of the books they feature in the ads have pretty nice artwork, so they look good when the device is turned off.

I feel like, intellectually, this is how I should feel. That's why I find this so fascinating. My emotional response is so strong, and so unexpected, I want to discover the reason for it.

Ads bother me on a device because they violate rules 2,3,4,5 and 10 of Dieter Rams
10 Elements of good design. I also like minimizing what ideas are beamed into my head. That's why I dislike commercial tv but love Amazon Prime and Netflix.
http://en.m.wikipedia.org/wiki/Dieter_Rams#Dieter_Rams:_ten_principles_for_good_design

Would you say your constant reading is more to maintain what you already know rather than to gain new knowledge?
Like a pianist practicing everyday?

No, because I work differently and my mind is wired a bit ... oddly. I can read something once and it tends to stay in a mental file cabinet forever, ready to recall whenever I need it. If I think about an anecdote from a book I read 15+ years ago, I can generally walk into the library, pick up the book, and know about where it was in the text. finding it in a few seconds. On the other hand, if you verbally speak a series of numbers (e.g., a phone number) to me, I can't recall it ten seconds later. It never makes it into storage. I'm not sure why but I've optimized my work process around it, which is one of the reasons I virtually never listen to audiobooks while other people I know love them.

When I read, I'm doing it to acquire new information and perspectives. Right now, I'm working my way through a cultural study of social changes from 1970-1990. This started with a handful of books, which then led me to buying a dozen more books after reading the footnote references for sources. It branches out everywhere. My reading of feminist perspectives of pornography will inevitably lead to farm equipment in 18th century England because it's like a tree branch, anything that piques my interest getting written down for study. That will then lead me to a case study on the farm equipment manufacturers, which, in turn, will lead me to railroads, which in turn will lead me to biographies of railroad tycoons, which in turn will lead me to architectural studies of the houses they built, which in turn will lead me to studying the way they managed their gardens. It's like the Sphere Grid from Final Fantasy X.

I rarely waste time with repetition of things already firmly established. A few years ago, Aaron and I walked into a Barnes & Noble, walked through the investing and finance section, looked at each other and said, "There's nothing new to learn here." I haven't bought a book in the genre for a long time. I've mastered far more than the fundamentals so unless I was looking into some new sub-area that wasn't in my core competency (e.g., capitalization structures for privately acquired hotel properties), I'd rather be reading a biography or philosophy book.

There are a handful of texts I re-read every once in awhile if I really want to commit something to memory. Ben Graham is on that list.

Personally I think you're right. While it's widely understood that everyone sees ads within software or on the web and that everyone has access to tools that block most of those ads, it is a different beast with hardware. Namely that from what I understand, ads are not commonplace there. Therefore you probably feel a little guilty, as if you were snubbing the lower class with your socio-economic status paying more for the ad free one subconsciously. The reality is that $50 is a lot to quite a few people and since ads on hardware devices are relatively uncommon, you know everyone would vastly prefer not to have them but some cannot afford the extra $50 to remove them. As far as the cell phones go, I think it bothers you that the extra cost is not transparent. Or this comment could be way off base, who knows. I only got 2 hours of sleep last night.

The lack of transparency is definitely one of my irks because I don't think that the typical cell phone customer has any idea they are thousands of dollars poorer because of this unfair model, which is almost entirely constrained to North America. I think it's only grown worse since I started lurking personal finance boards and see that these households in trouble often spend 5% to 10% of their after-tax income on cell phones for the various members, not realizing how insane that is if you are trying to build your net worth.

Hi Joshua! I would even group your site as a form of a subsidized model - a site that is developed with an ad-supported model, and the audience is the product!

The WSJ model you refer to actually annoys me; I understand it as a form of either cost containment or pure bottom-line driven revenue gain, but still, irks the heck out of me.

In my own readings, it's been postulated that people sell equities for a variety of reasons, but people only buy for one - belief in appreciation. I don't think this is always true for reasons you allude to - everyone to an extent is irrational and has beliefs, preferences, and opinions. HOG, anyone?

I agree. This site, which was and is a non-structured personal blog covering whatever is going on in my mind at the moment, began to attract readers for some reason. I didn't want to shut it down, nor did I want to put up a paywall, so I introduced advertising at the point my bandwidth costs exceeded $3,000 per year several years ago when it was much smaller. I took out a calculator, figured the negative cost of running it could result in at least $4+ million in additional wealth left to my heirs if I, instead, put the money into a low-cost S&P 500 index fund every year, and decided that it at least had to pay its own way instead of being subsidized by my other activities. (When I did it, in my head, I heard the words of Warren Buffett on the financial health of subsidiaries: "Every tub must have its own bottom".) That was the trade-off: Accept ads and get the content for free. Otherwise, I was going to take it all away and restrict it to family and friends.

If I ever put up a paywall, the ads would come down for subscribers. I don't like the hybrid model at all. I just mentioned in another response, Hulu.com probably irks me the most on the content side. You pay a monthly subscription cost and still have to sit through a ton of commercials, whereas with a site like DramaFever, you can either consume for free (and see commercials to offset your bandwidth usage) or pay a subscription and see no commercials. The DramaFever model just seems a more fair way to run things to me.

Here's how i put it into words, Joshua:

Advertising that I'm forced to view, even momentarily, feels almost as if someone out there is constantly trying to take advantage of me. They're attempting to break my focus on the things I find most important, my goals, my reasons for picking up my kindle in the first place. I am attempting to better myself with a read on business leadership, and they're jumping in to scream, "HEY WAIT! LOOK AT THESE JEANS!" I would, naturally, never buy the item shown; it is the fact that someone is constantly trying to break my focus and mindset to make a dollar, that almost offends me.

Here's the scenario -

My mind gets roaming onto the principles of great leaders. I begin pondering how these individuals developed the beliefs and outlooks that made them great. I reach for an autobiography, consumed with thought, questions and ideas racing in my mind. I open my kindle to immerse in a few minutes of potential insights and someone leaps out, and screams directly in my face:

"HEY! WHAT DO YOU THINK ABOUT THESE SHOES? THEY'RE GREAT, AND IF YOU DONT ACT NOW, YOU WONT GET THIS KILLER DEAL! HEY LOOK! YOU! LOOK!"
It's like being assaulted by street vendors when trying to take a meditative stroll in the park, and all you have to do to make them go away FOREVER is pay $50.

"for a mere $50 or so"
That $50 could turn into $15,000 in 60 years when I'm Warren Buffet's age. By that time I'd hardly remember the ancient kindle device (especially considering you already have 5 different devices even now). But that $15,000 could buy books for my grandchildren etc.
It's only an ad on the lockscreen that is hardly noticeable. You look at the lockscreen for about 1-2 seconds before reading for hours. How is this different from returning milk bottles to save money, something that takes your time and effort? This is free money. These ads waste none of your time and the savings can be instantly invested today.

On a related note, I'm sure many of your readers (including myself) would be happy to pay you money for a hard copy of this entire blog (minus the ads). It's very unwieldy to navigate through your blog archives.

Don't advertisement systems track behavior? Knowing what books you read and how you specifically read them, coupled with eye tracking systems analyzing your subconscious behavior, further coupled with always-on microphones analyzing everything around your device, could tell a tremendous amount about a person.

All of this could be shared with millions of companies.

Point being; you can end up paying a LOT more than $50 in raised insurance cost, raised credit cost, and lost opportunities etc. There is evidence of this out now. (We all know eating often at McDonalds and buying sweets could raise health insurance, right?). Then factor in opportunity cost of that money.

Well, actually I realize behavior is most likely tracked by these companies anyway, especially with the gov backing them up with immunity and possibly providing technology for them, so this notion of opting out could be pointless ...

*sigh* I don't know ...

Hand to God, I actually looked at Aaron and said, "Would you rather have the ad-free version or a couple more shares of General Electric?", it's so hardwired in at this point. I'd still rather have the ad-free version.

Perhaps your discomfort stems from the fact that consumers who are more price-sensitive are (not always, but generally), poorer than their less price-sensitive counterparts. Specifically, the paradox that people who can least afford the marginal expense are the ones who are called to consume more?

I once had the opportunity to ask the Verizon CTO why the American market did not have the same choice as the European market. That is, the opportunity to buy subsidized or "off contract." He looked at me like I was speaking Chinese and said he did not see how it could be done any other way. Of course, he was the CTO and not the business guy. That was years ago.

It has always perplexed me why computer makers, Internet providers, and their customers are willing to sell computers and service separately while cellular providers (and customers are not). That is, you'll pay $1500 for a laptop and then go buy the Internet service you want (or can get). However, you groan when the most expensive super phone is $200 subsidized. Most people in America wont pay $700 for a phone and then go get the service they want...which is generally now possible except for Verizon.

Don't mind leasing a cell-phone in Canada because buying it outright would save me literally 0$. No choice in carrier and none of the carriers offer reduced contracts for people who aren't on a leased phone....

Fido offers a discount for customers who bring their own phone.

If the reason you are opting for the ad-supported version is because you cannot afford the ad-free version, then newsflash: you really cannot afford the device altogether and have no business buying it.

This is an ironic topic, because of all the websites I visit, this one is the most noticeably choked with ads. I find them so easy to ignore, I wonder sometimes if the advertisers are getting any value.

No need to defend or justify. I get it and wish I could replicate what you do. Love the content you share.

(This response has nothing to do with the topic you are discussing - advertising models - but the form of your argument, which contains a conflation error.)

It isn't ironic at all because I never said I don't like ads, but rather, I don't like hybrid models where you ask people to pay for something and show them ads.

Hulu.com charges a monthly subscription rate and still interrupts your viewing experience with ads. I think that is unacceptable. At a site like DramaFever, on the other hand, you can either get the free version (with ads) or pay the subscription cost and have no ads displayed.

The analogous situation would be if I offered a pay subscription area of my site and still showed ads to my paid subscribers.

You see conflation errors most commonly in the populace at large during political elections. They're sometimes subtle, as is the case in this advertising example, but they lead to incorrect conclusions. You cannot take the subject of an objection in specific circumstances (e.g., guns in schools, abortion after six months, statutory rape charges for high school sweethearts that are very close in age) and then carry it over so that the object itself becomes the source of the objection outside of the conditions that were an inextricable part of the original objection.

The special offers are sometimes amazing deals. There are people that buy only the special offer version of the Kindle for a chance at those deals. With that said, you are 100% correct in your cell phone assessment. MVNOs are the only way to go.