Chris “The Long Tail” Anderson has an excellent story in Wired – “Free! Why $0.00 Is the Future of Business” – that pushes forward the concept that “freeconomics” is taking over the Internet as the technologies that power the Internet become increasingly less expensive. Here’s his thesis in a nutshell:
“It’s now clear that practically everything Web technology touches starts down the path to gratis, at least as far as we consumers are concerned. Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom. Basic economics tells us that in a competitive market, price falls to the marginal cost. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.”
Amid the emergence of free and the decline in technology costs, there is one thing within the ecosystem that is resistant to price declines: broadband access. The more we use the Web to access free services such as video, the more we value broadband service. This, in turn, gives broadband ISP the ability to hike prices with few, if any, complaints.
Simply put, broadband is an online anomaly – and an exception to Anderson’s thesis – because there is little competition. If you’re lucky, you have two choices in a market – cable and DSL – although WiMax teases everyone as a potential alternative. Today, you pick you broadband poison (DSL or cable) and pay your monthly fee.
Other than the cablecos and carriers being able to capitalize on on a sweet supply-demand equation, is there any reason why broadband prices continue to rise when the cost of equipment (modems, routers, switches, software, fiber-optic cable, etc.) to power these networks is, theoretically, declining.
In an ideal world, shouldn’t broadband prices be staying stable or even dropping while broadband speeds get faster? Why shouldn’t broadband ISPs be passing along the savings to consumers?
Here’s another thought/question: shouldn’t the broadband ISPs be sharing the wealth with all the free services that consumers are using these days. YouTube, for example, is a huge marketing tool for broadband because you need a fast connection to really enjoy streaming video. Shouldn’t the ISPs be paying YouTube a co-marketing fee?
While freeconomics is taking over the Web as most everything becomes a freemium or ad-supported service, broadband is becoming the most lucrative online business. The more that’s available to consumers, the more bandwidth they’ll want, and the more broadband ISPs can charge by offering different service tiers.
If consumers were upset about rising ISP prices, wait until bandwidth caps become increasingly implemented as ISPs look for other ways to generate revenue. IPDemocracy had a post recently speculating that Toronto-based Rogers Cable is going to launch metered broadband service across the board. This could mean the disappearance of all-you-can-eat plans that consumers have happily gorged on since video emerged on the scene.
While there may be no such thing as a free lunch, there’s plenty of free stuff to be had online – as long as you’re willing to pay for the privilege of accessing it using a broadband connection.
One more thought about Internet access: Doesn’t it seem somewhat ironic that when the technology was far less advanced, there was no lack of competition – remember all the dial-up ISPs that used to exist by riding on top of the telephone system? Today, the ISP business is either a monopoly or an oligopoly.