(keitai-l) Question for the group:

i had a general question for the group.

I've recently been in correspondence with Andrew Odlyzko, a research 
scientist at AT&T Research. He has published a large and well researched 
paper on how pricing has historically influenced usage of communication 
technology. In particular, he says that:

>Flat rates are the simplest form of pricing.  Although they have
>generally been regarded as irrational, and economically and
>socially undesirable, they have serious advantages.  Consumers
>like them, and are willing to pay extra for them.  Further, flat
>rates are extremely effective in stimulating usage, which is of
>advantage in a rapidly growing service like the Internet.

He also sites studies where metered usage has seriously retarded use, 
often to an economically irrational degree

(paraphrase)

>In the initial week, all 56 partici-pants in that phase had free service, 
>and downloaded an average of 193 MB each. During each of the following six 
>weeks, they had to pay for all traffic to their homes, with prices chosen 
>according to the principles of statistical experiment design, and taken 
>from the range of $0.001 to $0.20 per MB (somewhat lower that what a 
>residential DSL customer pays in the US.) As is shown in Fig. 7 in 
>[EdellV], even low prices led to a big drop in usage compared to the week 
>with no charges. The main point is that even prices below 1 cent per MB 
>led to a giant drop in usage (to an average of 143 MB per week from the 
>193 MB during the week of free service). Prices between 1 and 2 cents led 
>to a further drop to an average of 64 MB per week. Further increases had a 
>much smaller effect on usage. Yet even at 2 cents per MB, the usage of 200 
>MB/week that was observed during the free week would have cost just $4 per 
>week. It seems more reasonable to attribute this behavior to a 
>psychological aversion to metered rates than to a utility function that 
>has an unusual shape.

i asked him what his thoughts were that i-Mode seems to have grown very 
quickly even though it uses a metered per-byte billing system (as did SMS 
in Europe, when it is similarly metered), and he suggested that perhaps 
the growthrate we've seen has been smaller than what the growth rate 
could have been had i-Mode adopted flat pricing.

personally, i am a fan of metered pricing since it gives content 
providers a way to make money without having to resort to banner ads. But 
i wondered what people in this group think: could i-Mode have grown 
faster if it has flat-rate pricing?  Is there something unique in 
japanese culture that makes them more comfortable with metered 
communications use? When people use i-Mode, are they counting packet 
charges in the back of their mind?

the papers can be downloaded from here:
http://www.research.att.com/~amo/doc/complete.html
(Under the "content is not King" section

zimran  

zimran@creativegood.com
212.736.2075

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