The “Consumption Conundrum”

Jeff Bezos is apparently in a good mood  – and so am I (although my happiness is qualified by my experience of the “Consumption Conundrum”, more of that later)! Finally some has come out and said what I’ve being saying is the strategy (or should be the strategy) for device manufacturers for ages. In his presentation Bezos writes on a whiteboard the following:

Premium products at non-premium prices.

Want to make money when people use our devices [he underlines “use” here], not when they buy devices.

The 2nd statement is the thing I really want to draw your attention to. Making money from usage – from consumption of content and of data!  This shouldn’t come as a surprise as the industry intellectuals have been saying “content is king” from the dark ages of tech (that’s the 90’s). Indeed with the likes of Google and Apple selling “the Cloud” it’s patently obvious that they’re hoping you’ll consumer even more (actually consuming content you have already bought and paid for!) and one thing sticks out like a sore thumb here…

We all know that handsets are subsidised (although this defeats me as I can’t comprehend how a handset can cost nearly half as much as my 48″ Sony TV!) to allow network operators to make the small pittance they do each year e.g. Vodafone in 2012 made £11.5bn profit, but is there a hidden cost that the operators are having to pay?

We all “know” that they are paying a kick-back to the phone manufacturers for the cost of the device but I’m also suggesting that they’re also paying them a commission on the revenue generated. It would make sense – why elect to leave out a removable micro-SD card facility, and why limit the device’s storage capacity….obviously to encourage “Cloud” consumption and therefore an improved revenue stream for both the network operators and the manufacturers.

4G is on it’s way – I’m hard pressed to say it’s actually here, despite what Kevin Bacon has to say on the matter, when Vodafone can only deliver it in London!!  Naturally, both parties hope this will increase consumption further….but therein lies the rub and the reason my joy is not boundless.  We may have the fastest devices and networks in some of our cities but coverage is actually pretty patchy.  Try driving along any of our major motorways and maintain a signal, the last time I was on the Eurotunnel train they didn’t even have any wireless to allow you to consume! And wo betide you if you live in the countryside – you’re basically ****ed!

I’m afraid we’re going to have exactly the same problem as we did when 3G was first mooted – the forecast for revenue from consumption were astronomical – even in a world where there are apparently 2 sim cards for every subscriber – consumption has not yet reached those early lofty goals – what I call the “Consumption Conundrum”.  And there are 2 reasons why:

1. I’m probably like many others, paying for a pretty poor broadband service (thanks BT for the lack of investment) and I am increasingly using that as my primary consumption point. From there onwards the only consumption I do on my phone and other devices is to and from my home network and always over wireless. So sort out the basic infrastructure and more of us would be in a psoition where we could consume….and

2. Get the costs down – some of the monthly contractual costs for downloading <1 Gbyte are just ludicrous. According to Eldar Turvey, CEO of data compression companies Wandera and Snappli, video is “the number one hogger” of data. “After that it’s social networks, then it’s a bunch of news apps and sites, email is only 12%,” said Mr Tuvey. “One employee was a lawyer in Dubai and wanted to watch the Grand Prix. He watched the Formula 1 for two hours and came back with a bill – I think it was £14,000.

Ok that’s an extreme example but we were being sold the “original 4G dream”, where you had constant connection on a journey from home in the UK to work in the USA, back in the ’90’s and it hasn’t really moved on, so maybe it’s time all the relevant parties got together and cracked it – network operators providing better infrastructure, device manufacturers easing off on their drive to the “Cloud” and providing the means for us consumers to really consume….one day perhaps we will eliminate the “Consumption Conundrum”, one day!

While I’ve got your attention..

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