This post by our CEO Guy Rosen originally ran on Forbes’ CIO Network blog.
“Sir, would you like a 300 megabyte or a 3 gigabyte data plan with that phone?” asks the chirpy sales rep. “Mega, giga… what?” you ask, stalling for time as you attempt to decipher the question. All you really want is to get out of the store and start using that shiny new phone to play games, check e-mails, share photos and take advantage of the plethora of fun and functional apps on the market.
So why is it that average consumers are now required to choose a data plan, deciding exactly how much data they will use per month, when understanding data consumption is near impossible for most people?
To answer this question, let’s go back to the beginning of the 3G mobile data era.
In the mid-2000’s, network operators like AT&T and Verizon spent a fortune rolling out third generation (3G) networks. If you build it, everyone assumed, they will come. Alas, no one came.
These costly 3G networks spent a few years heavily underused, so, when a curious new device called the iPhone came to AT&T’s network in 2007, the carrier enticed subscribers by offering them unlimited access to the mobile Internet. But then the iPhone took off, Android arrived on the scene, and the mobile industry changed forever.
Now, the same networks that went underused in the mid-2000′s are bursting at the seams. Subscribers, particularly in big cities, are often tormented by slow Internet access and dropped calls. 3G mobile Internet has turned into one big traffic jam, with new cars joining the queue at an ever-increasing rate. Unfortunately, we can’t expand 3G infrastructures as we did with the wired Internet, when more bandwidth meant laying more fiber and adding more servers. In the age of the wireless Internet, we’re up against physics. Spectrum is a finite, scarce resource – there’s only so much we can squeeze into the narrow band of frequencies on which our mobile devices operate. Since mobile Internet access is in limited supply, and demand for data continues to explode, it’s only natural that the mobile Internet will follow the basic laws of supply and demand and that a price tag will emerge. Enter the data plan.
AT&T discontinued unlimited data and migrated to capped data plans only two years after launching the iPhone. Verizon’s unlimited plans only lasted for a few months following their iPhone launch in 2011. Around the world, carriers such as O2 in the UK or, most recently, SingTel in Singapore have faced similar struggles. In turn, each carrier has scrapped unlimited data. The sad fact is, unlimited data is not a sustainable business model. (Some smaller carriers trying to grow market share will offer unlimited data as part of a market penetration strategy, but they too are well aware that it is an unsustainable proposition in the long run.)
So now, in addition to choosing, say, 500 voice minutes per month and 1000 text messages, we have to choose how many megabytes we want. The problem is that for average consumers a “megabyte” is an arbitrary unit that makes about as much sense as a game of Quidditch. Our difficulties with data plans can be broken down into two divisions.
- First, lack of transparency: We don’t know which activities or apps use up megabytes, how many they use and why. Furthermore, we don’t have the ability to specify which activities or apps should consume our precious data.
- Second, lack of efficiency: Mobile apps are by and large very inefficient in how they use data. App developers focus on apps’ user experiences, engagement, virality and monetization. Data usage? Not really high up on the to-do list. Developers aren’t footing the bill for data; it’s consumers (and carriers) who are paying the price.
Take Facebook, for example. The social network recently rolled out an update to its iPhone app that drastically enlarged the size of photos in the app’s News Feed. These newly enlarged photos use up almost ten times the data of their smaller predecessors. Overall data usage generated by the Facebook app grew by as much as 50% following the rollout. If the world’s most popular app is negligent with our data, how can we expect anything different from smaller developers?
There is no easy solution, but it’s clear that the key lies in bringing developers into the equation.
One approach proposes to have developers foot our data bills. To the carriers’ dismay, this approach is not really feasible and any attempt at doing so is doomed to fail. Aside from the technical questions, this approach has consequences pertaining to the sensitive topic of Net neutrality.
The practical approach, therefore, is to introduce transparency – the key to any efficient market as it enables natural market forces to come into play. If consumers can easily determine what data they’re actually paying for, i.e., which apps are actually eating up their data plan, then developers can be held accountable. Today, I may choose a free app over an equivalent that costs $2.99 to save a few bucks, blissfully unaware of data efficiency. In the long run however, this free app might end up costing me more in data due to inefficient data usage.
If we expose these hidden costs, consumers will be able to make informed data usage decisions and app developers will be incentivized to be mindful of data usage and to build data-efficient apps. Following the growing price of gas, the automobile industry evolved so that drivers are given clear displays of MPG rating to help them make price-conscious choices. The mobile industry must evolve similarly, complementing the rising cost of data with access to clear breakdowns of data consumption that consumers can actually understand.
We all depend on the mobile Internet for our day-to-day activities, yet the economics underlying this resource are more fragile than they appear. Only by adding the missing piece of the puzzle and incentivizing developers do we stand a chance of building a sustainable mobile data economy that will last for years to come.