> The only companies that will be able to sustain today's all-you-can-eat
> plans for any length of time are those that can afford to lose money to
> buy market share. Companies like Microsoft.
But all in the spirit of fairness, right? I wonder if we can coax
Microsoft to kill Earthlink first...
> According to Wall Street analyst Bill Gurley (and others), simply
> offering unlimited use of a fixed-cost product leads to
> over-consumption.
Overconsumption by Internet users? Never!
:) Adam
http://www5.zdnet.com/anchordesk/story/story_698.html
It looks like giant service providers, such as the Microsoft Network,
MCI and AT&T, will ultimately obliterate today's independent Internet
Service Providers (ISPs). Why is it inevitable? Just do the math. Expert
financial analysts who have examined the situation predict victory will
go to giant companies who can afford to lose money for a long time in
order to gain market share.
Here's what went wrong for ISPs, the companies that supply direct
connections to the Internet. Last year a competitive feeding frenzy
erupted. In a panic, providers began to offer all-you-can-eat access for
unsustainably low fees. $20 a month. Even $99 a year! Business poured
in. The price war forced America Online to jump inand you watched the
resulting disaster (see links in the sidebar).
According to The List (a site dedicated to tracking the worldwide ISP
industry), the ranks of ISPs have swelled to 4,550. Now many smaller
providers are going out of business. Not from too little business. From
too much business. Their profit margins are so narrow, they can't spend
the money required to keep up with demand. The more business they get,
the deeper in the hole they go. Warning: Enjoy flat-rate Internet access
while you can It's too good to last forever. If you don't believe us,
crunch the numbers. Leading analysts have, and found unlimited access
pricing plans are not viable in the long term. At least not without big
changes.
According to Wall Street analyst Bill Gurley (and others), simply
offering unlimited use of a fixed-cost product leads to
over-consumption. Vanishing profits. And ultimately, failure. Gurley
suggests the most feasible unlimited-use ISP business model would have
the provider collect advertising revenues while its customers are
online. That way, the ISP's revenues more closely parallel its expenses.
Watch for this hybrid model to become more common in the coming months.
(And read the rest of Gurley's column, linked at left.)
The only companies that will be able to sustain today's all-you-can-eat
plans for any length of time are those that can afford to lose money to
buy market share. Companies like Microsoft. Others better be searching
for ways to subsidize their money-losing proposition. The winners will
figure out a workable combination of ad support and subscription fees.
The losers will discover their bottomless service has turned into a
bottomless pit. They don't need a crystal ball. They just need to be
able to read the LCD display on a calculator.
----
adam@cs.caltech.edu
The ultimate Jewish last name: Joel Rosensteingoldenbergman.