Wednesday, March 7, 2007

Too expensive to meter: The influence of transaction costs on commuications..

[Again another excellent paper by the well known iconoclast and debunker Andrew Odlyzko and his co-author David Levinson. In this paper they refute many of the arguments for fine scaled charging which underlies the architecture of IP Multimedia Systems (IMS), Next Generation Network (NGN) and the old bugaboo QoS. Further substance to this argument can be found in the article below from the NY Times in regards to charging for WiFi access at your favourite coffee shop. Thanks to Andrew Odlyzko and Dave Macneil for these pointers. --BSA]

Too expensive to meter: The influence of transaction costs in transportation and communication

Abstract. Technology appears to be making fine-scale charging (as in tolls on roads that depend on time of day or even on current and anticipated levels of congestion) increasingly feasible. And such charging appears to be increasingly desirable, as trafficc on roads continues to grow, and costs and public opposition limit new construction. Similar incentives towards fine-scale charging also appear to be operating in communications and other areas, such as electricity usage. Standard economic theory supports such measures, and technology is being developed and deployed to implement them. But their spread is not very rapid, and prospects for the future are uncertain. This paper presents a collection of sketches, some from ancient history, some from current developments, that illustrate the costs that charging imposes. Some of those costs are explicit (in terms of the monetary costs to users, and the costs of implementing the charging mechanisms). Others are implicit, such as the time or the mental processing costs of users. These argue that the case for fine-scale charging is not unambiguous, and that in many cases may be inappropriate.


>From the NY Times, March 4, 2007
Digital Domain
What Starbucks Can Learn From the Movie Palace

WI-FI service is quickly becoming the air-conditioning of the Internet age, enticing customers into restaurants and other public spaces in the same way that cold "advertising air" deliberately blasted out the open doors of air-conditioned theaters in the early 20th century to help sell tickets.

Today, hotspots are the new cold spots.

Starbucks became the most visible Wi-Fi-equipped national chain when it began offering the service in 2002. Now, at more than 5,100 stores, Starbucks offers Internet access "from the comfort of your favorite cozy chair."

Before you pop open your laptop, however, you need to pull out your credit card. Starbucks and its partner, T-Mobile, charge $6 an hour for the "pay as you go" plan.

Metering and charging for a service, of course, is the prerogative of any business owner in a free market. One will always find entrepreneurs willing to try new ways to profit by erecting tollbooths in front of facilities that had been freely accessible.

In the past, this took the form of coin-operated locks on bathroom stalls. (You may have first encountered these at a moment when you were least ready to praise the inventor´s ingenuity.)

Today, the outer frontier of pricing innovation can be found at the Dallas-Fort Worth International Airport, where some electrical outlets are accompanied by a small sign: "To Activate Pay $2 at Kiosk."

The restaurants´ predecessors, the movie theater owners of almost a century ago, understood that not every amenity, every service, every offering must have a separate price tag attached.

Panera Bread, which has more than 900 Wi-Fi-equipped sandwich and bakery stores, has set itself apart from its contemporaries by upholding the old-fashioned spirit of those bygone theater owners who never stinted in their efforts to make public space inviting.

The grand movie palaces did not have to show the revenue-enhancing potential of an ornamental gold cornice or plaster pilaster. So, too, at Panera Bread, where its fireplaces do not have to demonstrate a monetary payback to justify their place in the stores.

Neither does Wi-Fi. Neil Yanofsky, Panera´s president, said that no cost accounting had been done on its service, which is free. The rationale relates to ambience: "We want our customers to stay and linger."

A Panera cafe does half of its business at lunchtime - there is little lingering then. But before and after the lunch rush, the restaurant addresses what it refers to internally as "the chill-out business," which constitutes a not-insignificant 15 to 20 percent of its revenue.

Panera has no interest in rushing these customers out - the longer they stay, the greater the likelihood that resistance to the aroma of freshly baked muffins will crumble. Free, unmetered Wi-Fi is one way the restaurant sends an unambiguous signal: Stay as long as you like.