The Tyranny of Choice

If you have used an iPod shuffle or a Bose audio system recently, you might notice something: these are mimalist devices. The shuffle has no screen. You can turn it on or off, play songs in order or randomly shuffle, raise or lower the volume, go forward or back one song. Out of the box, the shuffle doesn't even have a transformer. You recharge by using a PC's USB port.

The Bose docking station, which provides amplification for iPods, allows you just a couple functions. You can turn the unit on or off. You can raise or lower the volume. If you use the remote, you can move forwards or backwards in your song menu. You can mute the audio. Though it initially is jarring, the Bose doesn not even have bass and treble controls, because it senses the acoustical properties of the room and adjusts all that for you.

So in a world where we assume the customer wants choice, how does that make sense? The flip side to choice is that too much choice is a problem. Too many options actually decrease satisfaction.

The obvious implication is that service providers habe choices to make. They have to identify the key things users want, then simplify features enough to satisfy them, while minimizing the total number of features available to users.

As much as many of us stress open platforms, because it leads to innovation, innovation also has to be harnessed to simplicity. Apple gets it. Almost nobody else ever does.

In his book The Paradox Of Choice, professor Barry Schwartz notes that a supermarket offers 285 varieties of cookies, 85 flavors and brands of juices, and 95 varieties of chips, 230 soup offerings, 120 different pasta sauces, 275 varieties of cereal, and 175 types of tea bags. Supermarkets today carry more than 30,000 items, and 20,000 new products are introduced each year.

You get the point, despite all that choice, few of us do much more than return, over and over, to our trusted brands. So there is no alternative but for service providers to continue to be gatekeepers of sorts, simplifying the experience of services and products in ways that give people what they want, but shield them from making all kinds of decisions that aren't central to the core experience.

Service and experience providers will make, and must make, decisions on behalf of their customers, to improve the value of the experience. Ironically, that means limiting absolute freedom to a great extent, even as some will urge openness to an extreme. Apple isn't open. It nevertheless produces products and services users love. So the issue is how well any particular provider really understands what people want.

In some real sense, the attitude of openness to innovation, which is a good thing, also covers a fundamental lack of understanding about what users really do want. Providers don't know. So openness is a good thing. But once needs are discovered, serious pruning has to be done.

It's a paradox, but that is what Apple does so well.

What's the Incremental Cost of Terminating a Minute?

Well over a decade ago, as part of an exercise to determine the actual incremental cost of terminating a minute of voice usage, I calculated that incremental cost could not be less than three cents a minute. The reason? Any service provider terminating a minute of long distance traffic, for example, would have to pay an access fee, and then there's the cost of the billing infrastructure to send a bill or comply with government regulations, which would add some fraction of a cent per minute.

It doesn't appear those costs have changed much, at least for most rural telephone companies. The cost to originate, by the way, seems to remain at about one cent a minute, with the actual usage of a switch costing about 4/10 of a cent, one analyst who continues to run cost studies reports.

Embarq SVP Bill Blessing, additionly, says that the cost of operating a soft switch is in fact not less than operating a legacy Class 5 device. Transport, access and plain old overhead continue to be where the cost drivers remain, not switches.

Mobile Data ARPU Inches Up

IDC research, there were 236 million U.S. wireless subscribers by the end of 2006. U.S. wireless data revenue totaled $4.8 billion for the fourth quarter of 2006, representing roughly 13.5 percent of mobile provider average revenue per unit, or $6.74 per subscriber per month.

Of the total data revenue, 48.8 percent came from messaging, 13 percent from content and simple application downloads and 38.2 percent from other business- and consumer-oriented services and content.

"Our research shows that in terms of blended data ARPU, Sprint Nextel, at $8.32, regained its lead over Verizon, now at $7.91, although Verizon remains the leader in terms of total wireless data revenue and data percentage of ARPU among the U.S. national carriers," says Julien Blin, IDC research analyst.

One way to look at the data is that basic communications remain the driver, though content sales are growing.

FMC Not a Slam Dunk

Bad news for fixed mobile supporters: In March 2007, Deutsche Telekom cancelled T-One, its dual-mode WiFi-GSM service in Germany, which it had launched in August 2006. Whatever else the shutdown might mean, it certainly indicates that service providers cannot simply put the service out there, make pricing and handset mistakes, and expect customers to go wild over it.

That’s especially true if there is competent competition. T-One was up against the cheaper T-Mobile home zone services, for one thing. Home zone services are based on tarriffs that encourage use of fixed network connections rather than mobility network when a user is within range of their identified home zone transmitter.

So why did DT’s T-One fail? It failed because it never managed to get enough customers. At the point the service was closed, DT had garnered far fewer than 10,000 customers. In fact, just 2,000 was the final figure, says TeleGeography.

The more important questions are why it failed to stir much customer interest. Observers point to high prices, really limited handset availability, competition from T-Mobile and basic lack of a compelling value relationship. Orange seems to be faring better, but results from other markets suggest the fixed mobile convergence value proposition still isn't broadly embraced.

Maybe all people want is cheaper calling and better reception when inside the home. Service providers can satisfy the first desire by a simple change of billing. The second requires some degree of technology integration. Beyond better reception and cheaper calling, it isn't so clear that lots of people want to converge phone numbers, features and services, beyond directory services.

Maybe all most people want is simply to use their mobile service more places, with acceptable quality, than they now can. Lower prices might also be an issue, but one might suggest users would prefer better coverage even to better prices.

iPod Rules, iPhone Might,

A new survey of 500 teenagers' buying patterns and brand preferences suggests that Apple's iPod market share grew to 82 percent from 79 percent last fall, and that 84 percent of students surveyed had heard of the iPhone. The study conducted by research firm Piper Jaffray also found 25 percent of participants indicating they would pay $500 for an iPhone. The survey also found that 89 percent of those students who legally purchase music online use iTunes, down slightly from 91 percent last fall.

"Apple's dominance in the portable media and online music markets is going largely unchecked," says Piper Jaffray senior analyst Gene Munster. "Also, iPhone awareness among students is high, and 25 percent show interest at the $500 price-point. We believe that the teen demographic is a critical component of long-term growth in both markets, and Apple is clearly leading the category."

"Among high school students, it is clear that Apple is successfully carrying itbrand from the media player market into the mobile phone space," the analyst said.

The percentage of students downloading music is still rising, but 64 percent of those surveyed are using free P2P music sharing networks, rather than paying for music legally. That number is down eight percent from 72 percent last fall, and iTunes share remains very high in the online music store category at 89 percent.

Some 82 percent of students polled say they own an iPod. Some four percent said they own a Sony player, while Dell, iRiver, and SanDisk players each accounted for two percent of players owned. About three percent of students said they own a Creative player.

When asked whether they planned to purchase an MP3 player within the next year, 73 percent said they would purchase some form of iPod. Just 11 percent of students surveyed said they would purchase a Sony player. The majority of students said they would pay between $200 to $300 for an MP3 player, more than the 22 percent who would pay less

than $100. 323 percent would pay between $100-$300, and just 10 percent were willing to pay higher than $300 for a portable player.

"Overall, Apple's dominance in the portable music player market remains largely unchecked, and Apple has captured the 'cool factor' among high school students," the analyst says. "We believe that Apple is poised to carry over its portable music player dominance into the mobile space with the iPhone."

"We expected to see high awareness of the iPhone among teens, given the incredible amount of buzz surrounding its launch," says Munster. Fully 84 percent of the students surveyed had heard of the iPhone, says Munster. "But we have also expected the iPhone's high price point ($499 for 4GB and $599 for 8GB) to result in less price-sensitive early adopters setting a 'gotta-have-it' trend for the iPhone," Munster says.

"Our survey indicated that 25 percent of high school students said they would buy an iPhone for $500," Munster says. "Even if 20 percent of those students (five percent) actually enter the market at $500, our estimate may prove to be conservative," Munster says.

Teens said they acquire 83 percent of their music via online download, but the percentage of music downloaded legally from online music stores -- 36 percent -- is at its highest point since the research firm began studying those numbers in the spring of 2005.

"While Apple is dominating the online music space the category as a whole remains under penetrated, as 37 percent of music purchased by teens is still purchased in a physical format," the analyst noted.