Some industries – the travel industry immediately comes to mind – are so plagued by dreadful experiences that it almost seems like we’ll never break out of the vicious cycle of paying more and more money for a worse and worse experience. But what if it were possible to turn any negative business experience into a positive game-like experience for your customers? Instead of bringing down your Yelp scores and complaining about you on Twitter or TripAdvisor, they might just walk away satisfied and content every time something unfortunate happens.
In fact, there’s a new travel insurance product from Berkshire Hathaway called AirCare that lets customers do exactly that. AirCare is essentially a $25 travel option that pays out if bad things happen — your flight is delayed, your bags are lost, or you miss a connecting flight. It’s genius. If you spend more than two hours on the tarmac, you collect $1,000. If you miss a connecting flight, you collect $500. And this money is wired directly into your bank account, with no confusing claims to file. So, as a traveler, you’re secretly hoping that your flight will be late or that your bags will be lost.
And this is where it gets interesting — you could almost imagine every industry essentially challenging their customers to bet against them. You’d bet your Uber driver that he or she couldn’t drive you from your apartment to your office in less than 20 minutes. You’d bet FedEx that it couldn’t deliver a package by a certain date. Any business transaction, in fact, could take advantage of this hidden optionality in everyday life.
You can see how ridiculously fun this would be — at least, a lot more fun than scratching off Lotto tickets at the end of every week. You’d want “bad” things to happen, and your life might actually be happier as a result. You’d be turning lemons into lemonade on a daily basis. This notion of being happier when things go wrong has a unique gamification aspect to it. Travel, for example, would become a game, making something that used to be unbearable almost fun. Airport delays would become a potential way to pad your bank account.
What’s making all this possible is the unbelievable growth of data all around us. Thanks to Big Data, it’s now the case that managers — and people such as Warren Buffett — know more about inner workings of their business than ever before. It used to be that only insurance companies and Las Vegas casinos (and some Wall Street brokerages) had the house edge when it came to business outcomes. In the case of insurance companies, they had actuarial tables, and could predict exactly how long you’d live in case of issuing a life insurance policy. In the case of Vegas, the casinos know the exact odds of winning, and always shade the odds in the favor of the house.
Now, it’s travel companies that have the house edge in betting against customers. Think the odds of picking up $1,000 for a two-hour tarmac delay are in your favor? Think again. You have better odds of winning in roulette than of ever picking up a payout from AirCare. While the two-hour tarmac delay seems to be a staple of the travel business, it’s actually a lot more rare than you might suppose. Of the over 500,000 flights in the United States in March, only 160 had tarmac delays of more than two hours. Your odds of winning? Approximately 1 in 3,000. So, no, it’s not actually advisable to bet against Warren Buffett’s Berkshire Hathaway.
But it’s easy to see that, if customers actually start taking advantage of these types of products, it could create a superior experience for consumers. If the odds of a two-hour tarmac delay used to be 1 in 3,000, then you can be sure that those odds would be pushed down even further once AirCare starts making payouts. The same thing with just about any other business transaction — businesses hate to lose money, and will do everything within their power to ensure that bad things won’t happen if they’re constantly on the hook. They will be forced to improve or change, to avoid losing money.
In fact, you can see similar types of AirCare-like arrangements all around you, only we just haven’t thought of them in terms of “hoping that things go wrong.” Take the “30 minutes or it’s free” pizza delivery promise, for example. (You want pizza to be late) Or, the “if you see a lower price anywhere else, we’ll beat it” promotion. (You want to experience a form of buyer’s remorse) Even the garden-variety product warranty is really a form of a bet – you’re betting that you’re purchasing a quality product that won’t wear out in 12 months. Companies that are willing to make your warranty more valuable by extending it out two, three, four or five years are also signaling to customers that they have a superior product.
So that’s why the future of business is hoping that things go wrong. We might see similar types of AirCare deals popping up in more industries. Just as some investors buy deep out-of-the-money put options in the hope that a company’s fortunes will plummet, consumers would essentially be buying deep-out-of-the-money options as well, hoping that a particular business event will turn out for the worse. Businesses may not become better, but they might just become more efficient.