Airlines are always looking for a new purple cow
In-flight Wi-Fi is a new purple bovine that’s gaining momentum. The Wall Street Journal reported yesterday that more than 500 planes are already in our skies with wireless access, and Delta and American are leading the way. Interestingly, but not surprisingly, the airlines are having trouble figuring out how much to charge for the service. With price plans ranging from $5.95 for flights under 3 hours to $12.95 for long-haul flights, usage has not been what the airlines had been hoping for. Completely free service has been tried with great success, but as one airline found out, even a $1 plan caused usage to drop off considerably. In a telling comment that exposes a misunderstanding of trends in technology, Michael Planey, a consultant specializing in in-flight passenger technologies, had this to say about the free vs. pay model:
There’s a very substantial decline in passenger usage the minute you start charging for the service. It really begins to invalidate the model on which this service is being built for the next 10 years.
I don’t know much about Mr. Planey, but I hope he’s wrong about the model for the sake of those building the systems. If he’s right, we need to avoid investing in companies building Wi-Fi for the airlines. Why?
We all know Moore’s Law, but less well known is that Caltech professor Carver Mead was the first to focus on it’s economic corollary:
If the amount of computer power for a given cost doubles every two years, then the cost of a given unit of computing power must halve over the same period.
We can substitute the words “storage” and “bandwidth” for “computer power” without invalidating the claim. Storage is doubling in one year, and bandwidth every nine months. That’s why you can ditch your TiVo in favor of Hulu. The upshot of all this is that the cost of computing power, storage and bandwidth is getting cheaper and cheaper by the day, to the point where it will almost be too cheap to meter. (For an outstanding in-depth analysis of this topic, add Free
So any revenue model that is built on charging for these commodities that continue to fall in price is, as Al Gore might say, a risky scheme. Moreover, by charging for Wi-Fi access, the airlines are missing better revenue opportunities by forcing people to stop and ask the basic question we all ask when there’s a price tag of any amount: “Is it worth it?” Is it worth opening my wallet to pay for a few hours of internet access? The airlines have already proved that any price lowers usage dramatically. So why not just give it away, and use it as an opportunity to connect with their customers to up-sell or cross-sell them on other services? Don’t force your customer to incur the mental transaction cost of deciding whether to purchase, particularly when you have a captive audience for a few hours. There are oh so many ways to make the Wi-Fi service free and yet profitable at the same time. “Give ‘em the razor” as King Gillette did so successfully.
So what’s the application of all this in our IT shops? Sort of the reverse, actually. While computing power, storage and bandwidth are getting cheaper, they are certainly neither free or cheap enough to ingore. They occupy monetary space in our capital and operating budgets as well as three dimensional space in our data centers. From a financial standpoint, many of us are not in a post-scarcity environment where we can afford to let the user community run wild. If we make all of the resources available for free, they’re going to indiscriminately use every last cycle, byte, and bit. For example, Google used to offer free snacks at their on-site conferences, which resulted in half-eaten power bars and bags of chips strewn all over the room, illustrating that people tend not to care about things they don’t have to pay for. But if it costs something, be it monetary or accountability, the user will automatically stop and ask “is it worth it?”
Am I suggesting charge-back systems? That’s certainly one way to go, but impractical for most of us. (Ironically, charge back systems will be de rigueur in cloud/utility computing). If cost and budget are issues, and you’re up against your resource limits, then simple accountability is a better strategy. Get some tools and actually measure your resource usage. Sounds obvious, but we see few customers do it. There are plenty of low or no-cost tools to measure storage and bandwidth usage, so it’s within everyone’s reach to do so. Then comes the less pleasant part: go to your more aggressive resource users and really challenge them to justify what they’re using. As Pavlov discovered, they will eventually respond appropriately, if for no other reason than to avoid the pain of future visits.
“Free” in the right context (marketing) can be a wonderful revenue generator, but “Free” in the wrong context (IT) tends to encourage wasteful habits, and we ought to be good stewards our of business resources regardless of their cost.
//spk
