The Subscription Trap

Summary

Planet Money: The Subscription Trap – Episode Summary

Planet Money, hosted by Alexi Horowitz Ghazi and Jeff Guo, delves into the pervasive rise of subscription models across various sectors and examines the economic and psychological implications of this shift. In the episode titled "The Subscription Trap," the hosts explore how subscriptions have become ingrained in our daily lives, the benefits and drawbacks they present, and the regulatory responses aimed at curbing deceptive practices within this burgeoning economy.

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Introduction: Discovering the Subscription Problem

The episode begins with Alexi Horowitz Ghazi sharing a personal experience of discovering an unnoticed $30 subscription fee to Fortune magazine (00:34). This realization sets the stage for exploring the broader issue of forgotten or unwanted subscriptions that silently drain consumers' finances.

Notable Quote:

"A couple weeks ago, I got an email telling me I just paid 30 bucks for a subscription to Fortune magazine that I didn't even know I had." – Alexi Horowitz Ghazi [00:00]

The Floundry: An Entrepreneurial Response

Alexi reaches out to Harun Moktarzada, an entrepreneur frustrated by his own subscription woes. Harun and his brothers created a brainstorming group they whimsically named "the Floundry" (01:08), where they tossed around startup ideas to solve everyday problems. Their journey underscores the commonality of subscription-related frustrations.

Notable Quote:

"All of the companies I've started start from just a problem that annoys me." – Harun Moktarzada [01:02]

Through their efforts, they identified the challenge of tracking and managing recurring payments, leading to the development of an algorithm that could sift through chaotic financial transactions to highlight subscriptions (03:15).

The Rise of the Subscription Economy

The conversation shifts to the historical context of the subscription model. Tien Zuo, CEO of Zuora, provides insights into how Salesforce pioneered the modern subscription-based software model in the late 1990s (07:49). This shift from one-time purchases to Software as a Service (SaaS) revolutionized the software industry, providing a steady revenue stream and fostering continuous product improvement.

Notable Quote:

"Let's create software that people don't have to buy. Let's create software that we run, that we operate, and you simply point your browser at our servers and we'll just take care of it for you." – Tien Zuo [09:42]

This model quickly proliferated beyond software, influencing industries like entertainment (Netflix, Spotify), consumer goods (meal kits, razors), and even heavy machinery (tractors with subscription-based features).

Benefits of Subscription Models

Subscriptions offer several advantages:

• Consistent Revenue: Companies benefit from a dependable income stream, facilitating better financial planning and investment in product development (10:19).
• Consumer Convenience: Subscriptions provide consumers with seamless access to products and services without the need for frequent transactions (12:12).

Notable Quote:

"Subscriptions mean that Salesforce would have a dependable stream of income month after month." – Jeff Guo [10:19]

The Dark Side: Consumer Inertia and Deceptive Practices

Despite their benefits, subscription models have a darker side:

• Forgotten Subscriptions: Many consumers lose track of their subscriptions, leading to unintended charges. Harun discovered he was paying for a home security system for a property he no longer owned, amounting to significant wasted expenses (04:34).
• Dark Patterns: Companies employ deceptive design tactics to make cancellation difficult, such as unclear terms, hidden fees, or convoluted cancellation processes (20:39).
• Inertia Premium: Research by Stanford economist Neil Mahoney reveals that a significant number of consumers continue paying for unwanted subscriptions simply due to inertia. His study found that when forced to actively reconsider a subscription (e.g., when a credit card changes), cancellation rates quadruple (21:26).

Notable Quote:

"They were benefiting from a sort of inertia premium." – Jeff Guo [22:29]

Economic Implications of the Subscription Trap

The subscription economy has led to market distortions:

• Monopoly Power: Companies locking in customers through difficult cancellation processes can reduce competition, as highlighted by Neil Mahoney. This diminished competition can stifle innovation and lead to higher prices (23:07).
• Consumer Trust Erosion: Persistent difficulties in managing subscriptions foster distrust among consumers, making them wary of engaging with new subscription services (24:01).

Notable Quote:

"Markets work when firms compete. And when you're not canceling a product you no longer want because you forget about it or it's impossibly difficult to cancel, those forces of consumers taking their business to another product are blunted." – Neil Mahoney [23:25]

Regulatory Response: The FTC's Crackdown

In response to the escalating issues, the Federal Trade Commission (FTC) has intensified efforts to regulate deceptive subscription practices:

• High-Profile Lawsuits: The FTC has targeted major companies like Amazon and Adobe for their convoluted cancellation processes and hidden fees (25:30).
• Click to Cancel Rule: Proposed in early 2021, this rule mandates that cancellation processes must be as straightforward as sign-up procedures. Companies violating this rule could face substantial fines, realigning their incentives to prioritize consumer-friendly practices (27:01).

Notable Quote:

"What the rule would do is really change the cost benefit. Yeah, you can trap people and maybe it'll earn you another $6.99 a month. But if you're caught, you could be liable for civil penalties of more than $50,000 per violation." – Sam Levine [27:23]

Personal Reflections: Confronting Subscription Overload

The hosts share their personal experiences grappling with numerous subscriptions. Alexi links her bank statements to identify and cancel unwanted services, revealing an annual expenditure of $7,379 on subscriptions (30:15). This exercise underscores the pervasive nature of the subscription trap and its financial impact.

Notable Quote:

"I didn't even feel like signing up for a new subscription in order to cancel all my other ones." – Alexi Horowitz Ghazi [29:35]

Conclusion: The Human Element Behind Subscriptions

Beyond economic factors, the subscription model taps into human psychology. Subscriptions often represent aspirational investments, such as gym memberships made with the intent to lead a healthier lifestyle. However, when personal motivations wane, consumers find themselves ensnared by their commitments (28:46).

Notable Quote:

"You think, yeah, this coming year is going to be the year I really get into shape... But then on the back end, when you realize... that's when they make it really difficult." – Sam Levine [29:01]

The episode concludes by highlighting the need for greater awareness and proactive management of subscriptions to regain financial control and trust in the marketplace.

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Key Takeaways

1. Ubiquity of Subscriptions: Subscription models have expanded across diverse industries, driven by their financial and operational benefits for businesses.
2. Consumer Vulnerability: Many consumers inadvertently sustain unwanted subscriptions due to forgetfulness or deliberately obstructive cancellation processes.
3. Economic and Ethical Concerns: The subscription trap fosters market inefficiencies and erosion of consumer trust, prompting regulatory intervention.
4. Personal Responsibility: Individuals must actively monitor and manage their subscriptions to prevent excessive and unintended financial commitments.
5. Regulatory Evolution: Ongoing FTC initiatives aim to curb deceptive practices, making it easier for consumers to cancel subscriptions and reducing the inertia premium.

Planet Money's exploration of "The Subscription Trap" offers a comprehensive understanding of how subscription models have reshaped the economy, the challenges they pose to consumers, and the evolving regulatory landscape striving to address these issues.

Transcript

[Alexi Horowitz Ghazi]

Support for this podcast and the following message come from Humana. Employees are the heartbeat of your business. That's why Humana offers group dental, vision, life and disability plans designed to protect them. Exceptional service, broad networks, and modern benefits. That's the power of human care. This is Planet Money from npr. A couple weeks ago, I got an email telling me I just paid 30 bucks for a subscription to Fortune magazine that I didn't even know I had.

[Jeff Guo]

Yeah, that is a classic problem. I think I'm subscribed to, like, two workout apps that I never actually use.

[Alexi Horowitz Ghazi]

Yeah, happens all the time. I realized I'd signed up for this $1 introductory trial to read a single article about crypto bankruptcies, and then I had totally forgotten about it for six months. But instead of canceling this particular subscription and moving on with my life, I decided to call up someone who's thought a lot about this vexingly common annoyance. An entrepreneur named Harun Moktarzada.

[Harun Moktarzada]

All of the companies I've started start from just a problem that annoys me.

[Alexi Horowitz Ghazi]

It's like the Larry David approach to business.

[Harun Moktarzada]

Sure, that's a way to put it.

[Jeff Guo]

About a decade ago, Harun and his three brothers, who are all business partners, were trying to come up with a new idea for a startup. They gathered a few times a week to produce Brainstorm in one of their basements, which they'd given this kind of fun nickname.

[Harun Moktarzada]

We called it the Floundry, because we said, like, we don't know what we want to do, so what we're going to do is we're going to flounder on ideas. And then when something hits, that's when we'll know it's a good idea. And we just started kind of tossing around mostly terrible ideas.

[Alexi Horowitz Ghazi]

There was the virtual reality headset that customers could wear on their stationary bicycles to feel like they were on a real ride. They decided that idea was just a bit too sweaty.

[Harun Moktarzada]

We had one that was a box that would send you goods from, like, your home country. So for, like, an immigrant, it would be like an assortment of different kind of, like, foods from there or other items from there. That one, actually, my brother Yaya had decided to sort of run with a little bit. And I think he might have started with Turkish products. My mother's Turkish, my father's Afghan. And he started getting orders and stuff. And, like, then you realize, like, oh, my God, like, I don't, like, I need, like, a room to put all of these things in, and there's like, inventory, and he's like, this is too complicated. And he shut it down.

[Jeff Guo]

Finally, one day in late 2015, Harun was in the floundry with his brothers when he started talking about this problem that was on his mind. A while back, he'd come across an article about how more than a million AOL customers were still paying subscription fees to aol, even though the era of dial up Internet was long gone.

[Alexi Horowitz Ghazi]

Haroun thought a lot of those people might not even know they were still being charged. In the age of automatic credit card payments and paperless bank statements, it could just be incredibly hard to know what subscriptions you were on at any given moment.

[Jeff Guo]

Now, Harun knew there had to be some simple, elegant solution here. If he could get access to a customer's monthly financial transactions, there should be a way to isolate and identify their recurring payments. The only problem was that he didn't know how to get that information.

[Harun Moktarzada]

And then my younger brother Dries is like, oh, I've been playing around with this company called Plaid that does the whole bank linking thing for you. And I was like, you're kidding me. And so we basically like jumped on this and we all go and we like, I put in my bank passwords and stuff like that, and it downloads all the transactions, then we dump them in this giant Excel file. So I've got like years and years of transactions in this giant Excel file. And then I like grab my older brother Zeki, and I'm like, zeki, look, we need an algorithm that's going to pick out from this large transaction list, you know, subscriptions, recurring stuff. They need to be like, maybe the same amount of money. The name needs to be like, similar. They need to be like, on some kind of regular occurrence. And he's a math major, so perfect. He's like, I got this. And like, he starts, like writing this algorithm and a little while later, boom, Like, a list pops out, a list pops out.

[Alexi Horowitz Ghazi]

All of a sudden, this chaotic jumble of obscurely labeled transactions going back years appears as this orderly list showing all the recurring payments that are getting taken out of Harun's account on a regular cadence.

[Harun Moktarzada]

And it was like, wow, this is like a new view that I've never seen on my finances.

[Jeff Guo]

And as Harun starts to survey this newly revealed financial landscape, almost right away he finds a troubling series of line items.

[Harun Moktarzada]

And there's a $40 subscription for a security system on a home that I had moved out of, like, over a year prior. I had paid at least a year to two years. So somewhere between 500 and,000 dollars went out the door.

[Alexi Horowitz Ghazi]

So you were paying for the home security of whoever lived in your old home.

[Harun Moktarzada]

I don't even know if they were using it though. I think I was just paying for it.

[Alexi Horowitz Ghazi]

It was just free money for the company.

[Harun Moktarzada]

Yeah, exactly.

[Alexi Horowitz Ghazi]

Harun's brothers then throw their bank statements into the algorithm and each of them starts to find their own forgotten subscriptions.

[Harun Moktarzada]

It was like four out of four. Like all four Muktarzada brothers were not properly tracking their money.

[Alexi Horowitz Ghazi]

And you're like, okay, if this affects the four of us, it might actually be a bigger thing.

[Harun Moktarzada]

Yeah, and if not, we clearly need it. So let's build it.

[Alexi Horowitz Ghazi]

Little bit of a spoiler alert. It was not just the Mukhtarzada brothers who were experiencing this problem. And in the years since that fateful day in the floundry, the number of people caught in this web of subscriptions has gone up and up. What's happened to the subscription economy since you started this company?

[Harun Moktarzada]

The subscription economy definitely exploded.

[Alexi Horowitz Ghazi]

Hello and welcome to Planet Money. I'm Alexi Horowitz Ghazi.

[Jeff Guo]

And I'm Jeff Guo. Over the past two decades, there's been a sort of tectonic shift happening under our feet as more and more companies have switched from selling goods one by one to services available as a subscription. From razor blades to meal kits to car washes. But all that convenience has come with a dark side.

[Alexi Horowitz Ghazi]

Today on the show, how we all fell into the subscription trap. Who is winning and who is losing in this brave new subscription based world and what the government and the free market are doing to try and fix it.

[Ira Glass]

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[Alexi Horowitz Ghazi]

So the problem that Harun Mokhtarzada and his brothers were setting out to try and solve with their new app about a decade ago, that had not just appeared out of nowhere. It was the result of this major economic shift decades in the making. A shift from selling individual goods to one where almost everything feels like it could be repackaged as a subscription style service.

[Jeff Guo]

To understand how that happened, we called up a guy named Tien Zuo. Teens had a front row seat to the rise of what he calls the subscription economy as the founder and CEO of a company called Zuora.

[Alexi Horowitz Ghazi]

So you guys are like the infrastructural backbone to some of the biggest subscription services in the world.

[Tien Zuo]

That's right. So we're a little bit invisible, right to you. You might not know that we exist, but we're powering the money transactions behind anything from Zoom to the New York Times to General Motors to power all sorts of subscription services.

[Alexi Horowitz Ghazi]

The basic outline of the subscription model, Tien explains, is at least as old as the magazines and newspapers and milk delivery services of the 19th century.

[Tien Zuo]

Why own a cow when you just want the milk? Right. That's really the idea.

[Jeff Guo]

Thien says you can trace the birth of our modern subscription obsessed economy to Silicon Valley in the late 1990s, and even more specifically to one particular company where he was an early employee.

[Tien Zuo]

Well, I think the company that people would point to is Salesforce.

[Alexi Horowitz Ghazi]

Salesforce is a company that makes database software for other companies to keep track of sales and marketing and customer service. And up until that point in the late 90s, Teen says, the software industry was still organized around selling individual goods, CDs with programs like Microsoft Word or Adobe Photoshop.

[Tien Zuo]

Despite the fact that software was a digital product, it was very much sold on a unit basis.

[Jeff Guo]

Customers would buy individual programs on a disk to install on their computers. For big pieces of corporate software, companies might have to install more servers and hire larger IT departments.

[Alexi Horowitz Ghazi]

In this model, software was like a tool, like buying a typewriter that you could use as long as you wanted. When you decided it was time to upgrade to the latest version, you had to go buy a new copy at full price.

[Jeff Guo]

The thing that Tien and his colleagues at Salesforce realized was that in the age of the Internet, this traditional model was no longer necessary. So they posited a new model.

[Tien Zuo]

Let's create software that people don't have to buy. Let's create software that we run, that we operate, and you simply point your browser at our servers and we'll just Take care of it for you so you can have the milk, if you will, without having to buy the cow.

[Alexi Horowitz Ghazi]

Salesforce started offering their software as a service. Now, instead of buying your own copy of some program for a hefty sticker price, you could essentially rent it and spread the cost into smaller recurring payments every month. More companies could now afford Salesforce, and everyone could get access to customer service and new software updates in real time.

[Jeff Guo]

As for Salesforce, the subscription service model was appealing for a few big reasons. It made software development less risky. Instead of making their money in lumpy fits and starts every time they released a new version of their software, Subscriptions meant that Salesforce would have a dependable stream of income month after month.

[Alexi Horowitz Ghazi]

They could cover the costs of maintaining the software, fund the development of new updates and products, and build on top of an existing customer base. They could more reliably plan their revenue and costs, and that would make them more attractive to outside investors.

[Jeff Guo]

Within a few years, Salesforce proved that this subscription model could be a billion dollar business. And other companies around Silicon Valley started to follow in their footsteps. Venture capitalists or VCs started investing more of their money into startups that offered software as a service or as the acronym goes, SaaS.

[Tien Zuo]

So I think when Salesforce went public in 2004 and really did well, the VCs understood that this is a viable model. And then you really started seeing the shift. All startups, really, so all software startups, enterprise software startups became software as a service companies.

[Alexi Horowitz Ghazi]

Within a decade, Netflix was offering streaming movies and shows as a service. Spotify figured out a new way to offer music as a service, both under the premise that it might be cheaper and more convenient for consumers to essentially rent access to these massive content libraries instead of individually buying songs or movies.

[Jeff Guo]

Even Planet Money has gotten into the subscription game.

[Alexi Horowitz Ghazi]

We see you Planet Money Plus.

[Jeff Guo]

And as subscriptions transformed the digital world, the enthusiasm for this model started to ripple out to more and more other parts of the economy.

[Alexi Horowitz Ghazi]

Pretty soon, you could get subscriptions to help you restock your household staples, so you'd never have to worry about running out of razors or morning coffee or toilet paper.

[Jeff Guo]

Yeah, subscriptions are everywhere you look these days. A lot of the basic infrastructure of the Internet runs on subscriptions. Things like Amazon Web Services, Even tractor manufacturers are now selling subscriptions to unlock all the features of the tractor they just sold you.

[Alexi Horowitz Ghazi]

At this point, does it feel like there's a kind of pressure on almost any type of company if they're trying to convince investors to back them to use a subscription model.

[Tien Zuo]

I think what's really telling is if you look at the early stage venture market and this definitely skews towards technology companies certainly, but I'd be hard pressed to see a venture capitalist fund a company that does not have a strong recurring subscription model.

[Alexi Horowitz Ghazi]

Which brings us back to our consciously floundering businessman, Harun Moktarzada and his three brothers. By 2015, when they figured out a way to clearly identify recurring payments in their own financial statements, Haroun says it was clear that helping people keep track of their ballooning subscriptions was only going to get more useful.

[Jeff Guo]

So they make a basic free website where people can link their bank accounts and find out what subscriptions they're paying for and might want to cancel. They send it around to some family and friends and over the next few months it gets popular.

[Harun Moktarzada]

But then came the requests from users that said, okay, that's great, but like, why can't I just hit a button and you guys cancel this thing? And we were like, huh, that would be nice. That would be nice indeed. And so we started doing that. We said, all right, we're going to do that.

[Alexi Horowitz Ghazi]

Harun and his brothers install a cancel button onto the website. And when a user pressed it, the request would arrive at the brothers San Francisco office where one of them, usually Yaya, would take it upon himself to brave the customer service gauntlet of whatever subscription their client wanted to escape.

[Harun Moktarzada]

Yaya was in the corner of this very tiny office just like making phone calls like, hi, yes, I want to cancel this subscription please. No, I don't use it anymore. No thanks, I'm not interested, Please cancel it.

[Alexi Horowitz Ghazi]

So it's the very familiar dance of trying to convince a company to let you go.

[Harun Moktarzada]

Yes. Although with like slightly increasing frustration as Yaya's on his hundredth call or whatever.

[Jeff Guo]

Eventually the brothers were able to get enough users and raise enough venture capital to create an app and outsource this laborious process to a call center in the Philippines. But they were still having trouble figuring out how to actually make any money.

[Alexi Horowitz Ghazi]

They considered charging a one time fee for the app, but decided that would exclude too many would be users. They talked about collecting and selling their users financial data, but Haroun says that option just felt like it would be a betrayal of their customers trust.

[Jeff Guo]

They did try affiliate marketing. Basically they earned a commission when their customers signed up for other company services through their app.

[Harun Moktarzada]

We made a little bit like we were making like maybe $15,000 a month or something like that, but Our expenses were in the hundreds of thousands at that point.

[Jeff Guo]

All of which meant that after just a few years, the company found itself in a dire financial situation.

[Harun Moktarzada]

And so we basically are like, guys, you know, there's something here, but it's not a sustainable company. It can't. We can't keep paying for the staff that we had hired and the engineers. It's like, what are we going to do? And we had this meeting. I was just like, all right, we basically have enough money for one other try, like, one bet. What is the one thing we could do?

[Alexi Horowitz Ghazi]

The brothers talk through their options. The affiliate marketing strategy had not worked. They still don't want to sell customer data. And finally, Yaya asks the question they've all been kind of avoiding for years.

[Harun Moktarzada]

What if we charged a subscription for this service? And, I mean, the sheer irony of that is why I personally was adamantly opposed to it. I just said, this is crazy, guys. Like, we can't have a subscription cancellation service that charges people a subscription for it. It just seemed so ridiculous. But when you're on death's doorstep, basically, you're willing to kind of do whatever.

[Alexi Horowitz Ghazi]

So that is how, after several years doing battle with big Subscription, Harun and his brothers finally succumb to the siren song of the subscription model.

[Jeff Guo]

And within a matter of months, Harun says, they started to see the number of premium subscribers grow and grow.

[Harun Moktarzada]

And as soon as I saw that number, I was like, guys, there's something here. It was $3 a month, too. Like, we weren't charging a lot or anything. But when we saw that, we were like, okay, we actually have a revenue model now.

[Alexi Horowitz Ghazi]

So the subscription model came to the rescue.

[Harun Moktarzada]

Subscription model came to the rescue. That's right.

[Jeff Guo]

Over the next few years, the brothers were able to raise tens of millions of dollars in investment. Turns out venture capital really does like a subscription model. And in the winter of 2021, Harun and his brothers announced that they would be selling their app, which they had named truebill, to the company behind Rocket Mortgage.

[Alexi Horowitz Ghazi]

And how much did you end up selling the company for?

[Harun Moktarzada]

It was 1.3 billion with a B. With a billion with a B. Yeah, it's a hard number to walk away from.

[Alexi Horowitz Ghazi]

So in the six years since Harun first complained to his brothers about his subscription problem in the floundry, the subscription model had exploded across the economy. And yes, it brought untold convenience to consumers and consistent revenue to businesses. But it's also meant that we've been juggling with more subscriptions than we can keep track of.

[Jeff Guo]

And this, you know, Cambrian explosion of subscription offerings has also exposed some of the deliberate and deceptive ways that companies have been trying to lure in and lock in as many customers as possible.

[Alexi Horowitz Ghazi]

After the break, the subscription model breaks bad and the government strikes back.

[Ira Glass]

This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts. What's in your wallet? Terms apply. See capital1.combank for details. Capital1NA member FDIC.

[Alexi Horowitz Ghazi]

This is Ira Glass of this American Life. Each week on our show, we choose a theme, tell different stories on that theme. All right, I'm just going to stop right there. You're listening to an NPR podcast. Chances are you know our show. So instead I'm going to tell you we've just been on a run of really good shows lately. Some big, epic, emotional stories and some weird, funny stuff, too. Download us this American Life. Alexi Horowitz, Ghazi here sure, subscriptions offer convenience, but are they bad for competition?

[Neil Mahoney]

When you're not canceling because you forget about it or it's difficult to cancel, those forces of consumers taking their business to another product are blunted.

[Alexi Horowitz Ghazi]

That's from our recent Planet Money bonus episode, my extended interview with Stanford economist Neil Mahoney. Listen with [e-mail] the code switch team.

[Jeff Guo]

Spent Election Day talking to folks about how the outcome might impact them. It's a time capsule of people's hopes.

[Alexi Horowitz Ghazi]

And fears before they knew the results. One way or another, there's a change coming. I wanted to vote for Trump, but I voted for her.

[Sam Levine]

Gays for Trump.

[Alexi Horowitz Ghazi]

I cried this morning. I've been crying on and off. I'm terrified. Listen to Code Switch, the podcast about race and identity, from npr. In order to understand why many of us are drowning in more subscriptions than we know what to do with, it's useful to step back and think about how the subscription model has incentivized businesses to behave.

[Jeff Guo]

Right. So if you're a business that just sells goods like TVs or whatever, all that matters is how many TVs you sell. But subscription businesses are built around not only how many customers you can bring in, but also how many customers cancel every month. That number, the percentage of customers who cancel, is called the churn rate, and subscription businesses obsess over it. It's the key to their long term profitability.

[Alexi Horowitz Ghazi]

And in a sort of ideal world when the subscription model is working well, a company's incentives should be aligned with its customers to keep the churn rate low and convince customers to stay subscribed. The company might improve their offerings or keep prices low.

[Jeff Guo]

But there has always been a sketchy side to subscriptions. There's famously, you know, a subscription mail order record company called Columbia House. They used to try to get customers to sign up by offering them 12 CDs for a penny. But then they would charge them full price for new records every month in perpetuity, unless they opted out.

[Alexi Horowitz Ghazi]

And you can still see the temptation for companies to try to gain subscribers or reduce the churn rate by making little tweaks that have nothing to do with improving their services. Like, maybe they'll just make it a little less clear how much the monthly fees will be after an introductory offer. Or they'll make it just a teeny bit harder to cancel by adding an extra step. There's a temptation to take advantage of the fact that we might not have time to go through all the hoops to cancel.

[Jeff Guo]

Now, if you want to get a sense of how much of the subscription economy is based on sheer customer inertia, you'll want to talk to Stanford economist Neil Mahoney. Last year, he and his colleagues released a working paper about this very question. He says usually when he talks about his work, people's eyes start to glaze over.

[Neil Mahoney]

This was one of the examples where people were sort of chomping at the bit to tell me their example of this phenomenon.

[Alexi Horowitz Ghazi]

So the anecdote was showing that a lot of people seem to be struggling with the same problem.

[Neil Mahoney]

Yeah, for sure.

[Alexi Horowitz Ghazi]

A couple years ago, Neil and his colleagues got access to this massive data set with the credit and debit card transactions of hundreds of thousands of people. And they designed a neat way to look at whether people were paying for subscriptions they didn't want. Basically, when people's cards were lost or stolen or expired, they were forced to actively choose whether or not to renew whatever subscriptions they were signed up for.

[Neil Mahoney]

And what you see, you see this, like, remarkably crisp pattern. Like, on average, 2% of people cancel every month. And then in the month where their credit card switches over and they have to make a active decision, 8% of people cancel. So they're four times more likely to cancel when they're forced to pay attention, decide, do I really want this product?

[Jeff Guo]

In other words, tens of thousands of subscribers in this study seem to have been paying for a service that they no longer actually wanted. Which Neil calculated meant that some of these companies were making anywhere from 20 to over 200% more revenue than they otherwise Might have. They were benefiting from a sort of inertia premium.

[Alexi Horowitz Ghazi]

I mean, it sounds like a pretty good deal for some of these companies. Yeah.

[Neil Mahoney]

And I think that that speaks to the issue, right, that there is a bunch of business models out there which might not be viable if markets were working the way they should, which is if you're not getting good value for money, you leave the product.

[Alexi Horowitz Ghazi]

Neil explains subscription services that rely heavily on forgetful or trapped customers are benefiting from a kind of monopoly power. The fact that part of their customer bases are locked in means these firms aren't guided by normal market forces that would lead them to improve their services or lower costs.

[Neil Mahoney]

It's a barrier to competition. Markets work when firms compete. And when you're not canceling a product you no longer want because you forget about it or it's impossibly difficult to cancel, those forces of consumers taking their business to another product are blunted.

[Jeff Guo]

Which is why the federal government has now entered the chat.

[Sam Levine]

Subscription traps are a market failure.

[Jeff Guo]

Sam Levine is the head of consumer protection at the Federal Trade Commission, which is like the main federal agency in charge of dealing with this subscription message.

[Sam Levine]

I don't know anyone who's not fed up with some of these subscriptions and I know a lot of people who are now more reluctant to sign up for subscriptions because they just don't trust that they're going to be able to cancel it easily. People are busy. I helped recently my partner's 75 year old mother try to cancel her cable subscription. It was hellish. She had to convince them that this is what she wanted to do. She has other things to do. I had other things to do. The fact that she needed the director of the Consumer Protection Bureau at the FTC to help her cancel an outrageously expensive cable subscription is a sign of how bad this problem has gotten.

[Alexi Horowitz Ghazi]

Sam explains that the FTC has had rules going back to the 1970s governing what is and isn't allowed when it comes to subscription model businesses. But over the last few years, the agency has received tens of thousands of new consumer complaints about deceptive practices on the part of these companies. Techniques that are way more deliberate and dastardly than just benefiting from the forgetfulness of some of your customers.

[Jeff Guo]

Yeah, they use so called dark patterns or deceptive design practices to obfuscate the terms of service or to deliberately make the process of canceling a subscription nearly impossible. Over the past few years, the FTC has brought several high profile lawsuits against companies that they see as the most egregious offenders.

[Sam Levine]

Yeah, I mean, we're in litigation with Amazon, but they called their own cancellation process the Iliad Flow.

[Alexi Horowitz Ghazi]

Like the Homeric epic.

[Sam Levine]

Yes, exactly. Which I think is a good example of how folks inside the company were thinking about the cancellation process for Amazon Prime.

[Alexi Horowitz Ghazi]

So would the customer be like Achilles trying to get into the fortified city of Troy in this metaphor? Or are the customers the Trojans getting tricked by the Trojan horse of dark patterns?

[Sam Levine]

I think that's a good question I would direct to Amazon rather than to me.

[Alexi Horowitz Ghazi]

We did, of course, ask Amazon to clarify what they meant by naming their cancellation process after the Iliad. Seems like they might have meant the Odyssey. They did not answer that part of the inquiry, but they did provide us a statement saying that Amazon Prime's signup and cancellation processes have, quote, always met a standard for customers well above legal requirements.

[Jeff Guo]

And we should say Amazon supports and pays to distribute some NPR content.

[Alexi Horowitz Ghazi]

Now, in another ongoing case filed against Adobe, the FTC alleges that a company executive there referred to an early termination fee tucked into their terms of service for a subscription as, quote, a bit like heroin for Adobe, basically suggesting that they were financially addicted to locking in their customers.

[Jeff Guo]

But Sam says the solution to this problem has got to be bigger than just a few high profile lawsuits. He says you have to change the basic cost benefit analysis that companies make as they design their subscription offerings.

[Alexi Horowitz Ghazi]

Last spring, the FTC said they were going to crack down on deceptive subscription practices. They proposed something they're calling the Click to Cancel Rule. And the idea here is to legally require companies to make it at least as easy to cancel any given subscription as it is to sign up. The FTC commissioners recently voted to pass the rule, and it'll go into effect in about six months.

[Sam Levine]

What the rule would do is really change the cost benefit. Yeah, you can trap people and maybe it'll earn you another $6.99 a month. But if you're caught, you could be liable for civil penalties of more than $50,000 per violation. And that's just basic deterrence theory. The cost of breaking the law needs to exceed the benefit. And this rule would go a long way toward realigning those incentives to ensure that it does.

[Alexi Horowitz Ghazi]

You know, since I got that email telling me I'd been paying 30 bucks for a forgotten magazine subscription a couple weeks ago, I've been thinking a lot about why it is that so many of us might find ourselves oversubscribed these days. A lot of it is explained by this broader economic shift. Of course, where buying almost anything nowadays is just more likely to entail a subscription. And some of it can be chalked up to the fact that a lot of companies are specifically designing their terms of service to lock us in for as long as possible. But I think there's also something much more deeply human underneath it. Something that Sam reminded me about when we were talking. It's the idea that there's this aspirational yearning behind a lot of the purchases we make when we sign up for a gym membership after New Year's. It's this kind of bet on ourselves that maybe this will be the year that we'll finally become the healthy, ripped person we've dreamed of. Or maybe it's an incentive to finally change. Sam says these subscription services have made it so incredibly easy to sign up and enter our credit card information that we can make those aspirational purchases all the time.

[Sam Levine]

You think, yeah, this coming year is going to be the year of, you know, the year I really get into shape, the year I really start cooking. But then on the back end, when you realize, you know, actually, I don't really have time to cook all of this food I'm being delivered, that's when they make it really difficult. The end result, People are stuck with way too many subscriptions.

[Alexi Horowitz Ghazi]

This year is finally going to be the year I'm going to purge all the subscriptions that I have not been using.

[Sam Levine]

That is an aspiration. And I understand there are apps you can download to help you do that. But then, good luck canceling those apps.

[Alexi Horowitz Ghazi]

I did not, in fact, feel like signing up for a new subscription in order to cancel all my other ones. But I did pull up Harun Mokhtarzada's Rocket Money app to at least get a look at the list of things I was paying for. I think it is finally time for us to do the thing that's kind of been lurking in the background this whole episode, which is.

[Jeff Guo]

Oh, no.

[Alexi Horowitz Ghazi]

To confront ourselves. Exactly how much money we've been wasting with all of these passive subscriptions we've totally forgot about. Jeff, are you.

[Jeff Guo]

No, no, no, no, no.

[Alexi Horowitz Ghazi]

Are you ready to take a look in the financial mirror?

[Jeff Guo]

No. This is a journey that you're going to have to go on by yourself.

[Sam Levine]

I'm sorry, what are you talking about?

[Alexi Horowitz Ghazi]

Why?

[Jeff Guo]

I do not want to know. But I support you in your journey, if you want to know the truth.

[Alexi Horowitz Ghazi]

So I linked my credit card and bank statements, and suddenly I found myself staring at a list of all my recurring payments. Okay. Oh, God. There There are a lot of things on this list. Apple Store 1838. It doesn't say what that is. Audible 14.95 Google One. Maybe that's storage. 211 per month. Paramount Plus 1297. Peacock. I have Peacock and Paramount Plus. And Hulu and Max. I feel a little dizzy.

[Jeff Guo]

I think it's time to face the music. You wanted this.

[Alexi Horowitz Ghazi]

Tell us the number hiding near the top was the number we had been looking for. For. Oh God. Okay, I've got the. I've got the total money per year that I'm apparently spending in subscriptions.

[Jeff Guo]

Okay.

[Harun Moktarzada]

Woo.

[Alexi Horowitz Ghazi]

This is outrageous. $7379 a year.

[Jeff Guo]

Lexi.

[Alexi Horowitz Ghazi]

In subscriptions.

[Jeff Guo]

No.

[Alexi Horowitz Ghazi]

What is happening?

[Jeff Guo]

Lexi?

[Alexi Horowitz Ghazi]

I think. I think I have to sit down.

[Jeff Guo]

That's $600 a month.

[Alexi Horowitz Ghazi]

Now, to be fair, about $250 a month we're going to car insurance and a Brooklyn storage unit. Neither of which feels exactly like a subscription. But in any case, I've been spending an obscene amount of money on subscriptions.

[Jeff Guo]

Is this going to make you do anything different going forward?

[Alexi Horowitz Ghazi]

Well, I think. I think I've got some decisions to make. I think I'm going to have to spend the afternoon doing a kind of Marie Kondo style joy accounting.

[Jeff Guo]

Well, just remember what Marie Kondo says as you're letting things go. Say a little thank you for their service.

[Alexi Horowitz Ghazi]

Thank you for your subscription service.

[Tien Zuo]

Okay.

[Jeff Guo]

Well, good luck.

[Alexi Horowitz Ghazi]

Thanks, man. All right, what is still sparking Joy and what has to go? The Chess app. Boom. Cancel it. The AAA membership. I definitely need that. I'm going on a big road trip. Geico. My car insurance. I obviously have to keep paying that. I don't need Kindle Unlimited. I don't have a Kindle Open. AI. They're gonna be fine without me. Canceled.

[Jeff Guo]

Today's episode was produced by James Sneed.

[Alexi Horowitz Ghazi]

Next up, we got Hulu. Oh, just take one last look at the offerings before I go. Oh, Shogun.

[Jeff Guo]

It was edited by Jess Jang.

[Alexi Horowitz Ghazi]

No. Okay. No. This is crazy. I need to get out of this. Canceling.

[Jeff Guo]

And fact checked by Sierra Juarez.

[Alexi Horowitz Ghazi]

Okay, what the hell is this? Am I double paying for hbo?

[Jeff Guo]

Max, that is not ideal engineering by Sina Lofredo.

[Alexi Horowitz Ghazi]

All right, we are making progress.

[Jeff Guo]

Alex Goldmark is Planet Money's executive producer.

[Alexi Horowitz Ghazi]

Okay, I see all trails here. I don't remember the last time I did go on a hike. Something a little sad about that. We are cleaning up here. Cancel, cancel, cancel. Yes. Woo. Free.

[Jeff Guo]

Okay. So after all that, how are you feeling?

[Alexi Horowitz Ghazi]

I feel the weight lifting. I'm going to go out into the world now. I've learned my lesson. You know, I might go back to all trails, though. I don't know.

[Jeff Guo]

I'm Jeff Guo.

[Alexi Horowitz Ghazi]

And I'm Alexi Horowitz Ghazi. This is npr.

[Jeff Guo]

Thanks for listening and thanks for subscribing to Planet Money Plus.

[Alexi Horowitz Ghazi]

Oh, yeah, go mash that. Subscribe this message comes from Insperity, providing HR services and technology from payroll benefits and HR compliance to talent development. Learn [e-mail] hrmatters this message comes from Wondery.

[Ira Glass]

Some of the craziest conspiracy theories are actually classified government operations. To hear more about these hidden truths, listen to Redacted Declassified Mysteries with Luke lamanna on the Wondery app or wherever you get your podcasts.

[Alexi Horowitz Ghazi]

Joe Biden's on his way out. Donald Trump's on his way back.

[Harun Moktarzada]

Want to know what's happening as the.

[Alexi Horowitz Ghazi]

Presidential transition is underway? The NPR Politics Podcast has you covered with the latest news and analysis. Listen to the NPR Politics Podcast.