SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

The Metered Internet: Another Artificial Scarcity Bad Idea

Posted by Bob Warfield on January 20, 2008

Time Warner is toying with the idea of limiting your Internet access in terms of how much bandwidth you can access in a month.  This bad idea has got the web atwitter with various comments and has been buzzing around Techmeme for a few days.  Apparently the move is prompted by the realization that half the network bandwidth usage is due to just 5% of customers who are taking what the ISP views as an unfair share.  They’ve been trying for years to penalize the other end of the transaction, not the customer downloading, but the businesses serving up the downloads (a concept called network neutrality).  The latter is much like the Post Office wanting to hit up Neflix for running up an inordinate share of mailing costs.  Unfortunately, while this is all predicated on that 5% of unreasonable customers, the fear is that rising use of online video will cause many more customers to be impacted and could stifle growth in these new areas.

Some other countries have had caps like this and worse for some time.  I just can’t get warm to the idea though.  Bandwidth is a commodity that gets cheaper to deliver by the day.  There is a ton of dark fiber out there: fiber optic that is in the ground but isn’t even being used.  We can send more data over a fiber than ever before.  Perhaps the only problem in sight is that a new generation of routers may be needed to take us to the next level.  I agree with Stacey Higginbothom who says this is really a symptom of the duopoly or poor number of choices among broadband providers that most communities have.  As usual, these companies cry out that they must be granted monopolies to build the infrastructure, and then they deliver mediocre service.  What is irksome is that the monopolists get to change the deal after the fact without recourse.  Services like this should get better over time, not worse. 

The reality is that this is just another example of a company creating Artificial Scarcity.  The strategy doesn’t work in the Digital Age, at least not for long.  What it does is to provide the fuel for someone else to come along and disrupt the heck out fo the monopolist that put it in place.  The RIAA are the best known example of a bunch that lost out after creating Artificial Scarcity.  Time Warner will find that if their changes are onerous enough, people will look for alternatives, and it will be profitable for others to produce the alternatives.  The irony is that big companies have watched this strategy tried and failed many times and yet they still keep bringing it up.  Not enough B-school cases on it I guess.

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2 Responses to “The Metered Internet: Another Artificial Scarcity Bad Idea”

  1. These companies were founded on the basis of artificial scarcity, so we can hardly blame them for their DNA. I think it was about 30 years ago that we first started arguing about the problems that would arise from monopolistic municipal cable franchise practices, but you and I might be the only two people around who even remember those discussions. The current management certainly can’t remember that it could have ever been any different.

    FWIW, I am a huge fan of the Grateful Dead, and I am one of the 5% downloading hundreds of concerts 24/7. I recently dropped TimeWarner to take advantage of the AT&T semi-secret $10/month DSL rate imposed upon them by the feds as a condition of the recent SBC/ATT merger.

    So here is a case where the governmentally imposed monopoly granted to TimeWarner was countered by the governmentally imposed discount rate demanded of AT&T.

    Is it any wonder that this marketplace is confused and striking out in finding alternatives?

    Thanks for the article!
    steveh

  2. [...] Comments stevehpervasivecom on The Metered Internet: Another…twgonzalez on Many SaaS Players Still Don&#8…pakipics on Unintended Consequences: How …Dream Job [...]

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