Mobile’s looming money problem

The era of free online content may be finally coming to a close, as the New York Times is starting to charge frequent readers for access to its news. That’s a necessary change — no business can exist without sufficient income, and the Web’s “give it away in hopes of other revenues” business model simply doesn’t work for the media business, as ad rates continue to decline. However, the Times is implementing its subscription options in a bad way for mobile users.

The problem is that the Times is acting as if iPhone and iPad users aren’t the same people. It’s charging $15 per four-week period to access the site (beyond the first 20 free articles) via the Web and via a smartphone app, as well as $20 for access via the Web and its iPad app. If you use both a smartphone and an iPad, your price jumps to $35 — in essence, a double charge and a penalty for using multiple devices. It will discourage adoption of the very subscriptions that publishers need to survive.

Likewise, the amazing adoption of iPads in addition to iPhones and Android smartphones — and the likely wave of Android tablet adoption later this year — is leading to another mobile money issue: Users are being forced to sign up for separate data plans for each device. The cellular carriers advertise their data plans in data buckets, such as $25 for 2GB of iPad usage at AT&T and $20 for 1GB of iPad usage at Verizon Wireless. But you also pay separately for access on your iPhone or other smartphone. That means multiple-device users are asked to pay a lot more, forcing most to make a choice between the two.

In both cases, the pricing is illogical and punitive. For their DSL and TV services, neither AT&T nor Verizon (half-owner of Verizon Wireless) charges per computer or per TV, but that’s what they’re doing for mobile devices. The same goes for the Times — it doesn’t charge more to access its website from multiple computers or browsers, but will do so for access to its content from multiple devices.

Mobile devices should be treated like computers and TVs: People should pay for customer accounts with a set amount of data usage, then be free to consume that data from whatever devices they choose. That means if I buy 2GB of data from Verizon Wireless, I should be able to consume it on any Verizon-compatible device I own.

In the same way, it shouldn’t matter if I read the Times on multiple devices; they should be covered by the same subscription. In my case, I read the Times on the train to work via my iPhone and then via my iPad in the evening. That will cost $35 under the new scheme, but if I access the Times on the iPad’s browser instead of the iPad app, it’s $20. Of course, the iPad app is a better reading experience than a browser, which is why I use it. If the Times is concerned about losing money from users sharing accounts, it could simply prohibit simultaneous access via its apps.

Why the carriers don’t want mobile devices to share accounts The carriers want to treat mobile devices as unrelated accounts because that lets them make more money. They know that an iPad owner may pay for a 2GB plan, most users won’t even come close to using 1GB. The carriers justify their usage bands by saying the headroom prevents users from incurring overage charges — tapping into the fear from the early days of cell phones, when you could rack up hundreds of dollars in charges due to per-minute fees. The carriers played the same game with data usage during the dawn of 3G.

The truth is the carriers know they can make their plans look less expensive by playing games with these data consumption bands. When a carrier charges $20 for 1GB and knows from usage patterns that the typical customer consumes just 400MB, the effective price per megabyte has doubled. Meanwhile, the carriers are aware that customers compute the cost by dividing the maximum data — whether or not it’s accessed by the user — allowed into the price.

You can tell that carriers are manipulating customers by comparing data plans across devices: They charge for for the same bucket of bytes when used by a laptop or MiFi device as they do for a tablet or smartphone. Why? because they know a laptop user who has a 2GB data plan is likely to eat up most or all of that 2GB, whereas an iPad user does not.

As for the argument that the headroom in their data usage bands is meant to avoid unexpected overage charges, that’s easily remedied in a less manipulative way: Send users an alert when they hit, say, 80 percent and then 95 percent of their plan’s bucket of bytes, and require the user to agree to buy more once that cap is reached. To be fair, thanks to Apple’s strong-arming of AT&T last year when the iPad was first released, iPad 3G customers get such alerts. Some carriers, such as Sprint’s Virgin Mobile subsidiary, do the same for laptop users, which shows that the overage games aren’t necessary; a straightforward approach is possible.

The bottom line is that the carriers make more money the longer they force each mobile device to be on its own plan and reap extra profits from the unused data on each device. In other words, they’d make less money if they really were selling 2GB for $25, rather than counting on your using just 1GB. The carriers like to claim poverty and talk about the expense of deploying 3G and 4G networks (even though these lower their delivery costs for voice traffic), and they want the freedom to restrict traffic on their networks to deal with congestion they blame on heavy users of online video and games.

But I don’t believe them. At the same time the carriers complain about the demands on bandwidth, they heavily promote the use of video on their networks. They also have a history of using the congestion excuse to favor their own services over competitors’ offerings. Maybe the carriers are telling the truth this time, but they’ve cried wolf too many times in the past. They also remain pretty darned profitable.

The pay balance needs to swing to information, not carriage Whatever the carriers’ economic realities, I believe we’re fast approaching a limit of what people can afford to spend on information access. Add up the costs of your broadband, TV, phone, and mobile services, and you’ll find it’s likely the second or third biggest expense in your household if you don’t have kids; if you do, it’s likely in the top five. It’s true the Internet has saved many people lots of money as they stopped paying for newspaper and magazine subscriptions in favor of getting it for free on the Web. Most of us believe that since we’re paying for the information carriage (Web, TV, and so on), we’re paying for the information itself — but we’re not.

The very idea that charging for content constitutes setting up a “pay wall” is obnoxious: No one seems to object to the grocery store having a “pay wall” for the food they eat, the electric company for having a “pay wall” for the electricity they use, or the carriers have a “pay wall” for the data they access, nor do I see people clamoring to tear down the “pay wall” of the salaries they earn. The Internet’s culture of entitled freeloaders is just nuts. Maybe that attitude was plausible when the industry thought advertising would pay for everything — but it doesn’t. (And the Times appears to be making a big mistake by letting people get unlimited access to its content if they come from Twitter and other feeds, apparently to not turn of the young-adult population. All that will do is perpetuate the free-loader culture and simply shift users to those conduits, turning them from grazers to firehose-feeders — and undermining the whole notion of paying for frequent content usage.)

Carriage costs are going up through individual access pricing for multiple devices, and information costs are increasing as publishers finally realize they have to make money so that they can continue to deliver their products. As a result, the balance needs to shift. Mobile is where the action is — the only venue in which carriers charge per device, not for the aggregated service, and it’s the most likely venue that publishers can retrain the public to think of themselves as paying customers. Thus, mobile is where this new balance needs to be struck most urgently.

To make that happen, carriers and publishers alike need to treat multiple-device users as people, not as multiple devices, and price accordingly. Otherwise, they’ll both hit the ceilings of customers’ willingness to pay and either undermine the move to mobile or undermine the move away from “information is free” — or both.

This article, “Mobile’s looming money problem,” was originally published at InfoWorld.com. Read more of Galen Gruman’s Mobile Edge blog and follow the latest developments in mobile technology at InfoWorld.com. Follow Galen’s mobile musings on Twitter at MobileGalen. For the latest business technology news, follow InfoWorld.com on Twitter.