The long game on metered pricing: free shipping

Time-Warner cable has begun to roll out its metered pricing plan in Beaumont, Texas. Alley Insider says it won’t work, and Mike Arrington declares it a moral outrage. Both are missing the “third way” which I wrote about earlier this year.

Tying consumers’ prices to their consumption is not inherently a bad thing — in fact, it’s probably good for network buildout. Relating usage to fees provides a return on investment: more bandwidth provided equals more revenue, thus more capacity equals more revenue. Expecting any business to invest in its product without a return is a bit silly, even if we like to huff and puff.

The alternative, in a world of non-infinite bandwidth, is something like a tragedy of the commons. The idea that two people can consume vastly different amounts of a resource, while paying the same amount, will logically lead to a bank run of sorts. Imagine if food or gasoline were priced in such a way.

(All that said, TW’s particular plans may or may not be the right numbers.)

In any case, here’s what will likely happen with metered pricing: Content providers will pay to have their bits not be counted against the consumer’s bandwidth limit.

So let’s say you go for the low-end plan with a limit of 5Gb per month. Apple (or Netflix or ESPN…) really wants to get their programming to you — say 1G worth of sports highlights (with commercials, natch).

They know that if you’re on a metered plan, you are less likely to consume the content. What’s a content provider to do? Pay for the delivery. Let the consumer know that the shows we deliver don’t count against your “minutes”.

It’s free shipping. Just like Amazon makes a deal with FedEx, ESPN makes a deal with Time-Warner. Heck, maybe ESPN will sell something like Amazon Prime.

The consumer is subsidized by the producer. And the delivery guys (Time-Warner, FedEx) make a few bucks too.