Saturday, September 5, 2009

Are some services overpriced?

I would like to bring to notice the warranty/disclaimer provided by two of the most profitable services businesses:

1. Computer Software Product : Here are some quotes from sample text of disclaimer/warranty provided by one of the biggest software product companies:
  • Without prejudice to any other rights, XYZ may terminate this EULA if you fail to comply with the terms and conditions of this EULA.
  • XYZ warrants that the Software will perform substantially in accordance with the accompanying materials for a period of ninety (90) days from the date of receipt.
  • Supplements or updates to the Software, including without limitation, any (if any) service packs or hot fixes provided to you after the expiration of the ninety day Limited Warranty period are not covered by any warranty or condition, express, implied or statutory.
  • Except for any refund elected by XYZ, YOU ARE NOT ENTITLED TO ANY DAMAGES, INCLUDING BUT NOT LIMITED TO CONSEQUENTIAL DAMAGES, if the Software does not meet XYZ's Limited Warranty, and, to the maximum extent allowed by applicable law, even if any remedy fails of its essential purpose.
  • Any replacement Software will be warranted for the remainder of the original warranty period or thirty (30) days, whichever is longer, and XYZ will use commercially reasonable efforts to provide your remedy within a commercially reasonable time of your compliance with XYZ's warranty remedy procedures.
  • Except for the Limited Warranty and to the maximum extent permitted by applicable law, XYZ and its suppliers provide the Software and support services (if any) AS IS AND WITH ALL FAULTS.
  • Notwithstanding any damages that you might incur for any reason whatsoever, the entire liability of XYZ and any of its suppliers under any provision of this EULA and your exclusive remedy hereunder shall be limited to the greater of the actual damages you incur in reasonable reliance on the Software up to the amount actually paid by you for the Software or US$5.00.
2. Credit Rating Agencies : Here is a sample text from disclaimer of renowned rating agency in India.
  • XYZ does not guarantee the completeness or accuracy of the information on which the rating is based.
  • XYZ is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this product.
Both the disclaimers almost the same thing:
  • There is no warranty that the product XYZ is selling to you will perform as you or XYZ wants.
  • XYZ already knows that there are faults in the product but XYZ is not liable for the losses arising out of those faults.
What else I see common in both the industries:
  • Both of them depend too much on manpower and human skills. Ratings agencies have shifted to computer generated models lately but those models in turn are again developed by humans.
  • Both the agencies command EBITDA of over 30 to 40%.
Compare these with some of the other services industry like Airlines and Laundry. You get compensated for lost baggage in an airline or damaged clothes in a laundry and both the industries have very less profitability compared to the ones mentioned above. Can we expect a change in future?
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