Re: [wg-c] Switching costs: a proposal

[Kent Crispin <kent@songbird.com>]

On Mon, Aug 30, 1999 at 02:33:11AM -0700, Roeland M.J. Meyer wrote:
[...]
>>
>> This analogy was discussed some time ago, I don't remember where...
>> 1) The actual measure of "lockin" is the *ratio* of switching
>> cost to price of item.  Real Estate is priced at thousands of dollars
>per
>> year; a domain  name costs tens of dollars per year.
> 
> Where did you get this? Of course I disagree. This type of response is
> also one of the main reasons I don't like analogies. The price of the
> item has nothing to do with it. It is the simple ability to switch and
> someplace to switch to. The only relation cost has to do with it is if
> the cost of switching becomes greater than some revenue fraction.

Uh.  This is precisely the point.

> This
> indicates the degree of "pain" felt as a result of the switch. Typical
> costs that are less than 1% of revenue are not felt much, when they
> become greater than 10% they are noticed and anything above 25% of
> revenue generally can't get approved without going to the BoD/Owners.
> The fact that 1% may be 10,000 times the price of a new domain is
> irrelevant.

You know, if you only wrote a few lines more you would have completely
made my case for me -- you were doing an excellent job.  Just let me 
finish it for you:

You are precisely correct -- the point is not switching costs per se;
the point is that domain names are so cheap relative to their
switching costs.  This is the opportunity they create for monopoly
profits.  I tried to express this clumsily by pointing to the ratio 
between switching costs and price; you have fleshed out a much more 
detailed explanation.  Thank you.

As you point out, if your rent is doubled, you will go to the BOD
because it is a significant expense.  In fact, if your rent was
doubled, you might very well *have* to move, because you simply
couldn't afford to stay.  If your rent were raised by 20% you might
start considering a move. 

But if someone doubles the price of your domain name, you will 
simply pay it.  A domain registry can double or quadruple its 
income by exploiting switching costs; a landlord can't.

> > 2) Even without rent control there are very elaborate special legal
> > structures for real estate.  Tenants rights are ensconsed in law;
> > there are no such guarantees in regard to domain names.
> 
> You ought to try living outside of California (an extremely consumer
> friendly state), like Texas or Colorado, sometime. Besides, business law
> covers domain names. A contract is a contract, unless it violates the
> law.

"Tenants rights" is only a tiny, tiny example of the special laws 
concerning real estate.  Consider zoning, water/mineral rights, 
title search, escrow, property tax.  As far as I know, all these 
apply in Texas and Colorado, and they are *all* constraints and 
conditions above "business law".

-- 
Kent Crispin                               "Do good, and you'll be
kent@songbird.com                           lonesome." -- Mark Twain