Saturday, January 03, 2004
Internet pricing paper
This paper analyses the issues surrounding the future of Internet pricing. It is unnecessarily long, but worth a browse. The key points, imho, are:
- Internet infrastructure companies are trying to apply discriminatory pricing of the kind used by railroads (first class, second class, third class fares), by airlines (yield management) or by wireless carriers (pay to download ringtones)
- They are unlikely to succeed, because unlike the railroads etc, the cost of infrastructure is very low for the Internet - the infrastructure is dumb and most of the intelligence is "at the edges"; a single strand of fiber can carry all the transatlantic Internet traffic - several terabytes/sec - and costs like $10 million/a year to maintain
- Telcos should stick with flat pricing, and should make money by providing ever-faster data rates and hope for innovation to increase their revenues, since flat pricing will promote innovation - okay, this point is not completely convincing
- Content is not the king
There's some interesting history in this paper regarding railroad, highway, canal, lighthouse pricing.
Another interesting argument is in favor of open architecture on the Internet. The paper pretty much says that the telcos were dumb to spend so much money on QoS, ATM etc. since that's not going to bring them additional revenues - IP will win and the pipes will just keep growing larger.
The authors state confidently that while streaming video is the Holy Grail of telcos, what users are really looking for is ever faster file transfer. They also slam the asymmetric nature of DSL/cable-modem services.
What I did not understand was how the authors explain the cell phone companies who have continued to innovate (WAP, SMS, 3G, Blackberry) while sticking mostly to closed architecture and discriminatory pricing.