Wednesday, February 22, 2006

Upgrading Profits

Why is it that businesses are no longer content just to earn a fair profit? Why must they continually look for ways to make extra money for the same product or service?

Lately, there’ve been several articles about various telecommunications firms discussing a new “upper-tier” Internet service. They plan to install faster lines, higher bandwidth, better switches, and so forth. Of course, there’s a catch. In order to send data across these faster pipes, they will have to get money from both ends – not only will I, the recipient have to pay for service, but so will the content provider. So either Google will have to pay every time I go to their page, or they will be relegated to the older, slower pipes. Ditto Yahoo!, MSN, CNN, Amazon, eBay, and so on. Note that this is not a raise in an existing fee, it is a completely new charge.

Here’s why this is a bad idea:

1. I’m already paying for the network. If you are going to upgrade it, charge me for the upgrade. Charging the websites I go to is only going to end up being charged back to me in the end, and I’d rather pay one bill to Verizon than one to Verizon and one to Google and one to Yahoo! and one to eBay and…

2. The only reason that I get on the Internet is to get to the information offered by the content providers. If you make it more difficult for them to get the information to me, then you are trying to kill the only thing that makes the network valuable in the first place. The concept is the same as a television network charging a producer for broadcasting his show, or a theater charging the movie studios as well as the ticket buyers – without the shows or the movies, there’d be no point in the network or theater.

3. The big Internet companies can afford to pay a “reasonable” fee – as I said before, it’ll simply get charged back to their customers, one way or another. But what about new companies? They can’t afford to start off charging high rates, so they’ll be forced to use the older, slower pipes. That keeps them at a disadvantage, making it harder for them to compete, to get a foothold in the market – thus stifling innovation and promoting monopolies.

4. I’ve already seen one example of “Two-tier” service: cable television. As an area upgrades to provide digital cable, the analog service quality begins to decline. Some of the channels get removed, some signals seem degraded, access to pay-per-view is no longer provided – meanwhile, the price stays the same or even increases. Certainly, the older equipment is unlikely to ever be upgraded, causing it to fall further and further behind. The net effect is to encourage customers to switch to the newer, higher-quality service – which is, incidentally, also more profitable. Once a telecom has invested in their new high-speed high-profit pipes, does anyone really expect the old lines to be upgraded? Ever? And what happens to the smaller content providers when the old lines fail?

I’m declaring my intent publicly – when and if my Internet provider switches to a two-tier service system, I will switch to another available provider, even if that requires me to spend more money. Since profit is apparently the only concept these companies understand, the only answer is to hit them in the bottom line. I encourage you to do the same thing, and to spread the word.

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