[9251] in Commercialization & Privatization of the Internet
an Internet buying coop?
daemon@ATHENA.MIT.EDU (Barry Shein)
Sun Dec 26 16:50:25 1993
Date: Sun, 26 Dec 1993 16:49:58 -0500
From: bzs@world.std.com (Barry Shein)
To: karl@mcs.com
Cc: tenney@netcom.com, com-priv@psi.com
In-Reply-To: Karl Denninger's message of Sun, 26 Dec 1993 14:28:11 -0600 (CST) <m0pE24S-000EosC@mercury.mcs.com>
The underlying assumption is that unmetered service will ultimately
cost less than metered service, or provide significantly more access
for the same $$$ price (same thing really.)
Another assumption is that one can achieve this by merely making
unmetered service available as an option (or the only option.)
What's missing, and perhaps implicit, is the part about where this
something for nothing will come from? Surely there would be nothing to
discuss unless someone was getting more for their $$$.
There are only a few possibilities:
a) Service providers are making excessive profits on metered service,
so merely by agreeing to live with less profits the costs and lost
income will be covered.
b) Even with metered services the average bill is $XX/mo so let's just
try to charge about that but flat-rate and the gross income should be
about the same as before (but what about resource utilization?)
c) Service providers could cut costs by cutting quality of services,
eg, staff, equipment per customer, etc. to make up for any lost income
or market unreality caused by flat-rates. That is, put more bread
crumbs in the hamburger and cut the price of hamburgers and everyone
will be happy.
Actually, when it comes to lower-tier services like SLIP I don't
believe the issue is flat-rate vs metered because just about every
service provider offers both.
Flat-rate is typically around $250/mo, and metered is around $20/mo
plus a few dollars/hour.
So what's actually at issue is the claim that those prices are too
high (for someone.) But we go round and round this flat vs metered
issue as if it existed, which it doesn't, but I guess it sounds good.
What hasn't been addressed are the realities:
Flat rate does exist, it typically costs around $250/mo for a SLIP
connection. So someone claims that's too much for them and they
believe too much for others.
Well, perhaps it is.
But that claim alone does not address whether or not it's a *fair*
price, a *fair* price is not entirely based on what most people would
like to pay, it has to also be reflected in the cost of providing the
good or service. Certainly if you charge less than it costs you then
it might make people happy but you won't be doing it very long.
See, from this perspective this whole thing is exceedingly silly,
com-priv is starting to sound like an open-air rug market.
If you believe that service providers are making unjustified profits
at these price levels then let's discuss why you believe that and see
where that goes.
If you don't believe that, then what exactly are we discussing here?
It escapes me. Just writing to Santa Claus for lower prices on this
particular commodity? (my my, how seasonally correct of me!)
Hey, there are so many things out there, health care, autos, decent
housing, that I'm sure a lot of people wish cost less, and perhaps
some should.
But somewhere there has to be some connection between people's wishes
for something to cost less, and encouraging someone else to bother to
get out of bed in the morning to provide the service at all!
Taking that for granted, particularly in a nascent industry, may be
very foolish. I assure you, the day running services here isn't
profitable I'll be off doing other things, I'll let people call you if
they want to discuss why there are no service providers in their town
any longer.
For example, you might be able to get govt to regulate pricing
(something often alluded to here) but you can't get govt to hold a gun
to our heads to not then leave the business and open a cute little
corner cafe' instead. It's a fine line one has to walk, but just
ignoring the real essence of the problem is just irresponsible.
I mean, I can sit here and say that $15,000 is far too much for the
"average" person to pay for an automobile (and most everyone needs a
car), or $2500 is far too much for the "average" person to pay for a
decent PC (and surely that's pre-requisite to even using the services
being discussed) but I don't know how that's going to change anything
unless one is sure they are pointing out some sort of disparity that
someone (and this is key) is going to look at and fix.
Merely counting up the number of people who would rather not spend
$2500 on a decent PC or $15,000 on a decent car certainly isn't
interesting by itself, no matter how much it pretends to smack of
democratic opinion formation. I can stand in front of audience too and
say "how many people would like state of the art PC's, fully
net-ready, 1Kx1K color monitors, etc, to cost under $1,000?" and get a
big show of hands. So what? No trick to that.
And those not-bottom-of-the-barrel example prices are quite on the
mark, since people here have already rejected inexpensive dial-in
connections to the internet as being just too low-ball for their
tastes.
I'll agree there are areas, mostly fairly mature industries, where
people claim that disparities exist. One example that comes to mind
and was recently investigated somewhat (certainly in Europe) are music
CD's.
It was noted that it costs around $1 to stamp one, but the retail
prices for current pop releases are pretty much rock-solid at
$15/each. Also importantly, that price hasn't changed in about a
decade, no competitor seems to think charging a little less is of
interest. That seemed odd, so they investigated anti-trust angles,
price-fixing and all that. Maybe someone did try to sell CD's for less
(wholesale) but woke up with a dead horse head in his bed or something
unsavory like that.
To my knowledge they really didn't find anything much, and probably
learned a whole lot about how when you total up the costs of
production, distribution, advertising, marketing, royalties, agents'
fees, and failures the profits are ok, there's a reason they keep
doing it, but nothing like the simplistic reasoning that gee, it costs
only $1 to stamp one why do they cost $15 in the stores might lead one
to believe.
I wonder how many people look at a 29c postage stamp and say
TWENTY-NINE CENTS? How much could it COST to print one of these little
things!?
I dunno, I still think 99% of this conversation is just silly beyond
redemption, particularly considering how prices are dropping anyhow
and how young this industry is. As I've said before, it's just the
lure of the applause one gets when they shout ``I can get it for you
WHOLESALE!''
I mean, does ANYONE stuck on this pricing thing have anything more
interesting to say then XXX is more than they want to pay so it should
be lower and to hell with how that might be accomplished (other than
just charge less whether that's profitable or not.)
Look, if something costs you say $200/mo to provide (including some
reasonable margin) and you charge $200/mo you may well sell a lot more
of them at $150/mo but in general you can't make up the $50 you lose
on each one with volume! It just doesn't work to say hey, if you
charged less more people would buy them unless you're sure that's
still above the cost! Even *good* economies of scale don't work quite
that dramatically.
Why do I get the feeling I'm whistling into the wind...
-Barry Shein
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