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Bait-And-Switch Loopholes

Bait-and-switch refers to the illegal practice of advertising a product or service, tempting customers to invest resources (time or money) based on the advertisement, and then changing the product once the customer has already invested, presumably to squeeze more money out of the transaction.

The problem ithat many products that rely on software to function, according to terms of service, come with components that are licensed, not sold, which essentially enables a loophole to legally apply bait-and-switch tactics to consumer products.

If you buy a device, but the software that is necessary to operate the device as advertised is not part of the purchase, the manufacturer can leverage this power position to do whatever they want with the consumer product, stating that they technically didn’t change the product itself but only the subscription that was not really part of the “sale” transaction.

The “anything-is-a-service” attitude strips consumers of their rights to a fair and transparent transaction. Consumers don’t know what they get anymore, because the actual product might change after the transaction.

This issue is elevated through the Digital Millennium Copyright Act (DMCA) which strips consumers of their right to manipulate the software that they purchased, making it illegal to modify the product to restore the originally advertised “bait” quality after the “switch” occurred. DMCA and the lack of consumer protection against arbitrary terms of service essentially makes it possible for corporations to modify the products they already sold to introduce new usage fees, add advertisements, or disable products altogether. This practice is often called “monetization” and justified by saying that not leveraging the opportunities outlined in the terms of service is “leaving money on the table.”

Here are some recent examples of bait-and-switch and corporations using their software power advantage:

  • Square Enix’s recent “Avengers” video game. They sold the game for a fixed price, vowing not to add pay-to-win and then suddenly made level-ups slower just to sell XP boosts.. (source)
  • Peloton treadmills that suddenly required a subscription for features that used to be free. Peloton said this was in response to accidents due to a lack of a child lock feature, but it’s hard to believe that this wasn’t just driven by monetization considerations and there wouldn’t have been a way to introduce a child lock for free while letting customers continue using the treadmill they already paid for. (source)
  • Wink’s smart home hub. The company printed “no monthly fees or subscriptions” on the product packaging but later reversed course and introduced a monthly subscription fee to use most of the product’s features, claiming that the terms of service would allow that. (source
  • NVIDIA upsetting customers that expected an ad-free premium media player by adding advertisements to the shield TV. (source)
  • Also, read this this beautiful piece by John Dvorak here about “unlimited” cloud storage.

If customers already purchased a product and the terms of service state that the terms of service can be changed at any time, consumers are powerless and at the corporation’s mercy to continue using the product they paid for.

If it’s legal to do this, shareholders will expect it, making it a standard and acceptable business practice. The potential revenue from eventually “switching” may be taken into account when investing into the development of consumer products. This results in the products on the shelves with the prospect of “switching” being potentially lower-price than the non-“switching” competition. This way, the bait-and-switch companies can build a larger user-base than, when the time is right, can be milked. Consumers don’t have a choice between “good” and “bad” products. Even if a company vows to be transparent about the product’s features, that can change after an acquisition or management change. Legitimate companies may be dragged into the bait-and-switch game to keep up with competitors that offer a lower entry price at the cost of having to “switch” later.

This is why we need regulations that end this.

If a product is sold with an advertised quality, it should not be possible to take it away from the customer later when the seller changes their mind. The idea that parts of the product (or, in the case of software, the entire product) isn’t actually sold when there is a large “buy” button for consumers to click is absurd.

Software-as-a-Service (SaaS) is a legitimate way to provide state-of-the-art products to customers via transparent subscriptions.

But the practice of combining SaaS with purchased products that could work perfectly without the software, because of the opportunity to monetize the customer base due to loopholes enabled by special treatment of software in copyright law is a bad development for consumers.

  • It must be transparent which parts of the product are free to use indefinitely and which parts may require a subscription.
  • If a subscription is required for some features (e.g. cloud synchronization or refill coffee pads), the protocols must be openly specified so a third party may implement consumer solutions to keep the product “alive” (e.g. a third party server or coffee pads produced by a third party).
  • If the product is reasonably cloud-based product (the product wouldn’t make sense without cloud connectivity), user must me given the option to switch to another service when the rules change and there should be a reasonable cap on the changes (e.g. a price increase) to prevent extortions of customers that have bought into an ecosystem.

Without this, continued use of the product may be subject to price gouging or planned obsolescence at the whim of the manufacturer.


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