Arbitrage is a complex name for something that’s actually very simple. You sell a product for $10 in the USA. You sell that same product in the UK for £10. In the real world $1 ≠ £1. The difference between the two, that’s arbitrage. It’s money for nothing, as long as you’re prepared to travel to a different currency with your goods or service. For multi-nationals, that isn’t a problem. In the age of internet shopping, that isn’t a problem.
For me, it always used to get my goat that American companies, in particular, would assume that £1 = $1. American companies drove computing, let alone the internet, and it basically meant that UK customers paid more. Either buy it in GBP, and accept our unfair rate, or buy it in USD, and pay the duty.
With software, in particular, we don’t really have that any more. Most things are delivered over the web, so there’s no concept of a disk going through customs. There’s not really any mechanism for an individual to pay VAT, say, other than at the point of sale. There is for businesses, and that becomes more complicated. Companies do try a bit of arbitrage, but it is usually acceptable. It’s less hassle just to pay an extra few pennies, and to know that you’ve paid in GBP, and be done with it. It also saves on banks charging for currency conversions.
However, yesterday I came across something old-school. I’ve been looking at wordpress.com, and they want £48 from me for a year’s basic subscription. When I set up the WordPress account, I must’ve said “UK” somewhere, so they know to bill me in GBP. However I was chatting to my (American) friend, he says he gets billed $48.
At today’s exchange rate, $1 should cost me £0.90, so $48 should cost me £43.19. This is using the site xe.com with today’s numbers. Yet, wordpress.com wants me to pay £48. It’s only £5 difference, but that’s an extra 10%. Imagine if everything you paid for each month just got 10% more expensive, you’d soon notice!
As you can guess from my tone, this all seems unfair. Why don’t wordpress work on the basis of “we want $48 per year per subscription”, then leave it to somebody like Paypal to calculate the amount, in the user’s local currency? Paypal allows users to pay in their local currency anyway, thereby saving them on bank charges. I’m sure there must be a little fee for their arbitrage in there anyway, but 10%?
So, I questioned them. This was all done yesterday, so at least they answer queries on a Sunday. The response started off pretty lame – “we can’t control exchange rates”. D’uh, thank you for assuming that I’m so stupid, I didn’t realise that. And, “if we billed you in US dollars, you’d only get hit by the bank for fees instead”. So, you’re giving me the choice of being screwed by the bank, or screwed by you? They did say that they would convert my GBP account to a USD account, if I wished, so at least I’d be able to choose.
Actually, writing this has made me realise – I choose neither. I really don’t like the ethics of a company who say “we will charge you more for our service, depending on where you live”.
I’m still thinking about wordpress.org, but I doubt it’ll be on wordpress.com. WordPress.org recommends a dew other companies – they all offer subscription services, but it’s not the subscription part that I object to, it’s the “having bought a subscription, we’re going to try and get some more out of you anyway”. As for “we can’t control exchange rates”, that just goes to show how dumb they think I am. But ultimately, I’m happy to stick with Blogger for now, after all, it satisfies my current needs, and contemplate a change at my leisure.