Sunday, May 16, 2010

The effect of cost on the uptake of new ideas

Why is the email such a worldwide phenomenon? It is free, that's why! Is this lesson enough for cellular voice and data providers to take a hint and clean house? This article reviews how telephone companies have historically priced otherwise cool ideas first into disuse and then into obsolescence.

All last week, Apple released international pricing plans for the iPhone in 7 countries. Alongside this several cellular network companies released data plans to support the 3G iPad model. Most of these plans tried to closely mirror the AT&T pricing model previously announced by Apple way back in January: A contract-free, no-overage-charging, unlocked SIM monthly plan of $15.00 for 256MB and $30 for Unlimited. Of all these service plans, two of them raised the most furor. Worst was the Japan plan that tied the iPad to a single cellular network company, contrary to what obtains everywhere in the world. The next closest angst-stirring plan was the Rogers plan of Canada.

The Rogers Canada problem

Rogers customers were livid with rage all last week and actually took it out on the Rogers Customer Service Blog, the Redboard.
The following are the key concerns, ordered from the least to the most disturbing:
  • Rogers would not match the AT&T base plan, dollar per dollar even though there's dollar parity
  • Rogers would not offer the AT&T-type Unlimited plan, claiming that most persons don't need it anyway. They rather replaced that plan category with a 5GB plan.
  • Rogers aborted the "Add iPad to your existing data plan" plan. This plan would (for a one-time $20 fee), let you use some of your unused data from another data plan.

This last one was the one that really got people threatening to even abandon the Rogers networks altogether. First, they feel they are only using data that they already paid for; they are using it with a second machine they paid for in full; and it was actually published on the Apple site as a Rogers offering. I could give you my opinion on this specific issue but this article is not about that. But if it was, I'd suggest that Rogers should fire whoever their Spin Master is. You know what a Spin Master does, right? That's the guy that comes up with the nonsense they tell people when they do something awful. The only requirement is that the nonsense has to be logical. Now, the Rogers nonsense is not logical.
To the Unlimited plan, they spinned, "99.xx percent of our customers don't need it". I was like, "Ok genius, so what's the problem?". Why stop at 5GB then, after all 99.xx customers don't use 5GB either! Then, to the "Join iPad to your existing plan" plan they said the most stupendously retorted spin: It was an error! What? Typographical or strategic? Since when was it an error to just do the right thing?
Let me offer an alternate explanation: Last couple months, Rogers got a signal from Apple that the iPad should not be subjected to the telephone companies' typical pricing barriers to adoption. In response, Rogers started investigating how to join iPad to existing iPhone/Blackberry data plans (It's not like it's new, anyway, the 'Couples plan' joins two or more phones to the same voice plan. And the 'GSM home phone' plan joins multiple handsets to the same plan. Anyway, Rogers created the "Join iPad ..." plan based on verifiable due-diligence and proper research. Then, the day following international price announcement, "The Department of How-Much-Greed-Can-We-Get-Away-With discovers that no one else is offering this. And they go, how much money can we gouge from these suckers if we knock off that "Join iPhone thingy?". "Did you say, millions? That's it! Take it off and let's see if anyone complains ... just as we tried to take advantage of the iPhone, too". That's what I think happened. But like I said, this post is not about that.

People don't like you metering their lives: The email case study

Emailing is a way to send some documentary information from one person to another, practically instantly. It has taken over our lives in such a short time. Billions of this thing get exchanged daily. Pretty much in the order of magnitude of millions per minute!! How did it happen? It is free; The telephone company did not get it's hooks into it before the rest of the world knew about it. They did not get a chance to charge for it on a per character, per word, per cent, per page, per minute, per MB or per anything basis. The email was not metered. And it grew.
The email had an twin sibling: Text Messaging (SMS). It was born in the same era but was controlled by the telephone company. They charged you per message, up to a maximum number of characters. So, it did not take off. Not until lately, when you can now get a package of so many messages per month (often unlimited local text messaging) because it has to complete with emails that now come right into the phone.
SMS has an older sibling: TeleFax (FAX). It was controlled by the telephone company. They charged per minute. Earlier on, they even forced you to get another line for your fax, even though the two machines could co-exist on the same phone line. They no longer do today, but that practice is the order of the day. Every company has a phone line and a separate fax line. The FAX was an irreplaceable document transmittal technology (not irreplaceable anymore, though). It helped businesses to cut down post office delays. But on the personal consumer side: The FAX failed. Most humans on earth have never sent faxes from home.
FAX too has a much older pair of sibling: Telex/Telegram. It was controlled by the telephone company, it was metered by the character. Yes, you paid per character. And later, per word. A period was a word, a space between two words was a word. The Telegram was great but it is dead.
People don't like you metering their lives. Why is Facebook, twitter, or all those social networks so successful? They didn't meter people. They found business models that don't just naively draw blood from the primary consumer, so fast and so much that they would shrivel and die and the idea dying with them.

Why do they charge so much?

I once asked my Telco friend why they charged so much for the cellular phone. And he said, "Because we can. We treat it as a premium service. People pay for the social statement of having a mobile phone. It did't cost us more to provide it but we won't reduce the price for as long as they keep paying". I learned from him that cellular phone networks are cheaper to set up than land networks, and they are not more expensive to run. They made you pay more for cell phones because they figure that mobility is important to you. Take for instance, the "Rogers Home Phone". This service is based on the very same GSM service that you have on the cell phone handset. But they can price the Home phone service to be competitive with the Telus landline service. Second example: Nearly 10 years after US mobile phone companies offered international roaming as a base service on their voice calls, Canadian companies still make you pay roaming fees if you leave your little city to visit your farm 10 km away.Even in many developing countries, the cellular minute is a nationwide minute. And to perpetuate this practice, it appears that the competing companies have found a way to agree among one another on what and what they can compete on. When competiting parties agree among themselves in any sport, it's called 'fixing' and someone goes to jail for it. And we do have regulators. We really do.

How fast should you draw blood from a baby?

I have a vision for the iPad that is similar to the vision I had for the laptop. It is much easier to have your iPad with you all the time. It will give you much more on-demand access to your stuff. And you will not have to 'get home' before you can do something. I believe the WiFi-only model is just a test-the-water model. The full glory of the iPad can only be revealed when you can just turn it on and you have access to all you need. Trust me this thing is so boring to use when you have no connection to the rest of the world! And right now, only a 3G access gives you that kind of coverage. This baby will blossom and become the way to consume information in our world.
Unfortunately, 3G is controlled by the telephone company. Until a practical Wide Area Network (WAN) emerges that is not controlled by the phone company, their control is going to remain. The way their heads are wired, they would force you to get a new line even if you can share the same one, they will charge you per small unit, they will make you pay for being happy, for convenience, and just because they can. They will meter your usage until the vision is squeezed dry. Then, they will wait for the next idea to emerge. If this iPad vision must survive, the telephone company has got to take it's talons off, now!

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