Project Fi and The Pay-As-You-Use Economy

Today google announced that it has become a wireless data provider. What’s interesting to me about this development is that most reporters, and maybe Google as well, seem to be burying the lede. First of all, Google hasn’t actually become a data provider … T-Mobile and Sprint are providing the data service. What Google is banking on is that by intelligently switching between two data providers, in addition to wi-fi, it can deliver a superior data connection for the user. As is usually the case with Google, this is super smart. Every network, whether it’s a network of cell towers or train tracks, will have strengths and weaknesses. If you commit to one network you gain access to its strengths, but you are also stuck with its weaknesses. Being able to switch between networks allows you to jump from one to another when you encounter a weak point. Depending on the networks this could be extremely powerful. For example, imagine one network had great west coast coverage, but bad east coast coverage and another had the exact opposite. Being able to switch between the two would give a device great nationwide coverage, beating even a network that had good coverage. In addition, because neither network is good overall it should be available at a discount. I wouldn’t be surprised if we see ads in the future claiming that Google’s Fi Network provides far better service than other providers like Verizon.

But it’s unclear to me how much will really change for the end user. Data coverage has become pretty good, and it won’t even become clear to users how much better Google’s service is (assuming it actually is better) until they start using it, or until Google starts a massive advertising push that successfully conveys this information to the public. The real news IMO is that Google will only be charging you for the data you actually use. The users who this will appeal to will immediately grasp the utility of this offering. If you spend the vast majority of your time within range of a wi-fi network, you know that this could save you a significant amount of money over time.

The truly innovative and exciting thing about this news is not the nature of the coverage, but how you pay for it. This is one of the first major examples of a shift in commerce that I have become convinced is coming: a move toward an economy where you only pay for what you actually use. The context in which I have typically been thinking about this is media. It seems crazy to me that if you only watch half of a movie, you still have to pay for the whole thing. Think about what that means. If you only watch half of a movie, that means it’s a bad movie. Imagine you ordered a product from Amazon, used it once and realized it sucked. What would you do? You’d return it and get all of your money back. Buy a bad movie though and you’re stuck with the full purchase price. Of course, up until recently, there wasn’t really any choice. The technology simply didn’t exist to allow for dynamic pricing like I’m talking about. This, however, seems to have confused people into thinking that it will take an act of God to change this pricing scheme. People seem to think that content providers would never allow for this, or that it would take some heroic titan of industry like Steve Jobs to spearhead such a tectonic shift in the very nature of commerce. But this assumes that content providers imposed the existing pricing scheme (actually there are multiple schemes) on their customers and are now holding them hostage. On the contrary, the pricing schemes that exist now were responses to competitive pressures, made using the technology available at the time, just as they will be in the future. Cable developed because of a demand for content geared toward a smaller audience uninterrupted by commercials.

The emergence of cryptocurrencies that allow for fast and low cost monetary transactions of tiny amounts combined with the growth of streaming video are the two primary developments which make the eventual prevalence of this pricing scheme inevitable. Streaming makes it possible to track the exact amount of content watched and low cost and fractional currency transfers make it technically possible to achieve this result, though partial payments are still technically feasible even without them, as Google is demonstrating, though their method is a bit cumbersome (monthly rebates). The reason we have not yet seen this offering is because both technologies are still relatively new and niche, with crypto being far too new and undeveloped for such an adventurous move. But there is a ton of action and competition in the crypto products-and-services market, making it only a matter of time. After that the question will be “Will such a pricing scheme confer a competitive advantage to content providers?” IMO it’s quite obvious it will. Amazon Prime and Netflix are fairly even when it comes to the quality and availability of their content (both have their own advantages and disadvantages). But imagine Amazon announced a pricing scheme that adjusted how much you pay based on how much you watch? Do you think this would win them customers? Of course it would. Not only would it attract people who think they are overpaying for competing flat-fee content providers as well as people who simply think it’s a fairer system, it would also be a sensational advertising opportunity: “We’re so confident in the quality of our content, we’ll only charge you for what you watch.”

Google’s move today might wind up being an important case study for companies considering such pricing schemes. If they reveal a strong market demand for pay-as-you-use pricing schemes it could accelerate the adoption and spread of them. Nevertheless, it’s still only a matter of time. Content providers are keenly aware that the quality of their content is of primary importance to their customers and they are eager to prove it. In addition, it might not be as monetarily adventurous as it might first appear. The content providers, for example, could pass the risk of people not finishing content onto the content creator. In fact, they would. The only question is when. They could do it in real-time, adjusting payments to the creator based on current viewing habits. But even if they didn’t, the money lost from users abandoning the content would be factored into the content creator’s successive contracts.

Finally, another important pressure that will force the market in this direction is piracy. I don’t think piracy is every going away and, in fact, with developments like Popcorn Time, it only seems to be getting better, to the point that it is now highlighting the flaws of conventional content delivery systems. People want to pay for content. But they don’t want to pay an unfair price for content, and they don’t want to pay for content they are not certain they will like. This is why they pirate. Such payment schemes will likely be a very cost-effective way of combating piracy. If I watch the first 10 minutes of the next installment in The Expendables series, I’m effectively watching it for free … without breaking the law. Meanwhile, the content provider still gets paid for the expense of displaying that content (the amount of server space, bandwidth, etc. required to stream the content) and the content creator still gets some compensation for their content, but actually only the amount they deserve. Ironically, this scheme also makes me more likely to view future content from this creator. Having seen previous installments of The Expendables, I know I would never pay $14 dollars for a movie ticket or $3 to stream it on Amazon. If these are the only options I am given, no one will make any money off of me. But if I know that I will only pay for what I watch, I will be much more willing to give it a chance.

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