[891] in Commercialization & Privatization of the Internet
Re: ``cream skimming''
daemon@ATHENA.MIT.EDU (Tim Salo)
Tue Jul 2 14:04:31 1991
Date: Tue, 2 Jul 91 12:11:28 -0500
From: tjs@msc.edu (Tim Salo)
To: emv@msen.com
Cc: com-priv@uu.psi.com
> [...] I'd like to track down the genesis of the phrase "cream
> skimming" as applied to the commercialization of the net. [...]
"Cream skimming" is a general and often pejorative term. It refers to a
strategy of targeting a segment of the market which is more profitable,
either because it will pay a higher price or because the cost
of delivering products or services to that segment is lower. In either
case, the seller realizes higher margins (i.e., makes more money).
For example, Gucci [substitute your favorite up-scale firm] "skims
the cream" in the sense that it seeks only customers who will pay
premium prices; the rest can go to K Mart [substitute, as appropriate].
The term "cream skimming" is often used in public policy discussions
about markets where:
o there is a desire for universally available or universally
affordable service,
o there is a desire for the price charged customers to not
accurately reflect the cost (to the seller) of providing
service, (e.g., a desire for all customers to be charged the
same price regardless of differences in the cost of providing
service).
o some firm (often a regulated firm or the government) is the
provider of last resort, and/or
o it is (implicitly) expected that some customers will subsidize
other customers to keep prices low or service widely available.
Cream skimming causes concern to the extent that it threatens the
public policy goals described above.
These public policy questions apply to Internet service, as well:
o To what extent should the goals listed above apply to Internet
service?
o What price are we willing to pay to achieve those goals?
Tim Salo
tjs@msc.edu
(612) 626-0347
