The Verizon Wireless “Convenience Fee” and the End of Capitalism as We Know It

January 1, 2012 § 9 Comments

The concept first hit my radar when the “profit challenged” airlines decided to offset their personnel costs by imposing baggage fees, charging up to $50 to stow and deliver them.  Travelers complained, and the media had a field day – how dare they charge us!  Airlines held their ground (with the exception of Southwest, which never initiated the fees), and after the latest wave of bankruptcies, the charges have contributed to the restoration of industry profitability.  Then several banks (particularly the large, publically traded ones) announced that, in response to new regulations that restrict the profit they can make on electronic transactions, they would levy new monthly fees on debit cards.  Never mind that customers always had the option to do their banking elsewhere, including many community banks and credit unions.  The well-intentioned media and special interests came to the consumers’ aid once again, and rather than continue to face the negative publicity onslaught, most, if not all of the banks, relented.  No profit for you!

And now this.  Three days ago, Verizon Wireless (VZW) disclosed that customers who chose several bill payment methods (including phone and Internet) would be assessed a $2 “convenience fee” per transaction.  Customers who chose alternative channels (such as snail mail or online bank bill pay), or who signed up for VZW’s auto-pay feature, would avoid the fee.  But within hours, the media and special interests arrived on the scene again; this time joined by the FCC, which threatened an investigation.  And like the banks, VZW relented within hours.  What if VZW had simply discontinued its higher cost payment options – would it have faced the same ire?

So what’s the message here?  Are companies supposed to feel ashamed or immoral for making a profit, or for increasing them, by charging a fare rate for the services they provide?  In a competitive, capitalist market, is it not necessary to continuously innovate and to seek new ways to improve the amount and quality of the services they provide, and as these enhancements contribute their cost basis, are they not entitled to pass along these costs to their customers who are willing to pay?  After all, these are for-profit enterprises, aren’t they?  And — rhetorical question alert — don’t customers always have alternatives to paying these fees, including:

  • Comply with the conditions for “free” (such as with VZW’s free bill payment options)
  • Switch to a different provider
  • Stop using the service

What, suddenly it’s our right as citizens to have wireless service, and even more so, wireless service without extra service fees?  Since when is profitability such a problem?  For those who cling to the “greater good” argument, how would they respond to VZW’s (and all companies’) lesser ability to hire new workers without continuous profit growth?  I’m sure my assumptions are flawed, but for simply math, let’s assume 20% of VZW’s 100M customers use one of the implicated bill payment channels, and that VZW makes as much operating profit on the “convenience” fee as Verizon does overall.  On that basis, VZW could afford to hire an incremental 1,800 employees earning the median U.S. household salary, on a fully loaded basis.  If these employees helped create more growth for the company, VZW could hire even more.

Don’t get me wrong – I have no problem with consumers in a competitive, free market taking their business elsewhere, or in the case of Verizon, avoiding fees all together by complying with any of the company’s free options.  But when advocacy groups, the media, and regulators pile on together, and create the impression that the company has attempted some moral misdeed, well, that’s where I draw the line.  Come to think of it, I’m not even clear to what extent the customers themselves were even bothered by VZW’s fee — with all the noise coming from other, more organized groups, we never even got the chance to hear from them directly (other than a certain number of Tweets from some of the more vocal among them).  With only hours between the announcement and reversal of the fee, I’m not convinced the average VZW customer even had a chance to learn about it, let alone to consider how they felt about it!

Look, I know my rant may be unpopular.  I’m all for consumers making their preferences known, and even better, taking action with their wallets.  In a competitive market, this works especially well, and we have several layers of government and special interests to ensure competitiveness.  But when a business in a competitive market is vilified for imposing fees, especially when it gives customers a free alternative, I just don’t get it.  Healthy, growing businesses hire people, give raises, and pay taxes.  Isn’t that important too?

Taken to the extreme, I can see this slippery slope gaining momentum, and before you know it, our economic machine could edge its way closer to the European model, with heavier regulation and less commercial fluidity.  Even if this doesn’t occur through formal methods, it could happen through PR pressure applied by special interests or individuals in high places with “an axe to grind”.  But with many Euro Zone economies presently at risk of default, it’s hard to make the argument that their model is more desirable.  I’m happy sticking with good ol’ fashioned, American capitalism, if you please.

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Google’s acquisition of Motorola Mobility more than just a patent play

August 15, 2011 § Leave a comment

The buzz around the GOOG/MOT deal is all about the 17,000 additional patents that Google will have both to innovate its platform, and maybe more importantly, to defend itself against the onslaught of suits currently making their way across the mobile industry.  I certainly don’t dispute the importance of the patent portfolio.  But I think Google has more up its sleeve, namely:

  • Access to a tightly controlled, standardized development environment.  Google has been criticized for the freedoms it has granted developers in the past, essentially letting them run amuck.  Great for independent developers, and perhaps one of the reasons for Android’s popularity.  Maybe even a necessary ingredient for the Android app universe to catch Apple’s.  But now that they’re close enough to parity, the downside of the approach has become more apparent.  Major upgrades to the Android OS  have to get pushed to multiple environments, not just one.  Innovation is slowed.
  • Android’s openness has also cost the platform in the area of security.  Too hard to tack down the many implementations of its software.  The closed-loop environment with Motorola handsets should allow Google to batten down the hatches, so to speak, and create a model environment for other OEMs.
  • Google offers to handset makers for “free”, with the understanding that broad distribution will ultimately lead to advertising opportunities.  Google may be thinking it’s time to pay the piper, and a tie-up with Motorola will enable it to experiment with tightly integrated advertising solutions over the OS.

No doubt, there are risks to consider.  With Motorola under its wing, Google could alienate other handset makers just enough to drive them closer to rivals, namely Microsoft (despite Google’s promise to run the unit independently, and to maintain its commitment to open development).  Similarly, MOT’s cable set top box business now falls into the hands of a parent with a track record of attempting to challenge the strength of established cable and telco players.  But if they balance their strategy right, and I have no reason to suspect they won’t, they will maintain their good standing, and improve their lot in the mobile arena.  I count this deal as a strategic “win” for Google.

The missing half of Mary Meeker’s Internet Trends presentation

February 11, 2011 § 3 Comments

Mary Meeker, formerly with Morgan Stanley, and now a partner at Kleiner Perkins, enjoys heavy praise each time she puts out one of her “state of the digital economy” Powerpoint decks.  I’m not quite ready to jump on that bandwagon.  Don’t get me wrong … I love having access to all that rich information in one, convenient place.  But these presentations (often 50+ pages) are heavy on charts that illustrate the past, and light on analysis that anticipates the future.   In her latest deck, you have to wade through 22 slides before arriving at one with original content (from KP’s portfolio companies) — all the prior slides, and most of those that follow, regurgitate data from 3rd party sources.

Mary Meeker, Internet trends (February, 2011)

Ms. Meeker compiles tons of interesting data to tell an articulate story of what’s already happening out there, but what I’d really like to see from her and her obviously talented team, are the implications.  How will these trends, such as the rapid rise in smartphone penetration, impact our economy, how we do business, or how we function in our daily lives?  Based on the trends she reports, here are some of the questions that need answering:

  • Will closed systems (like Apple’s) and open systems (like Google/Android’s and Microsoft’s) continue to co-exist, or will Apple eventually fall, like it did in the first PC era?
  • Are the people who buy iOS devices vs. Android vs. Windows Phone really that different?  And what does this mean for development and marketing strategies?
  • Will yesterday’s deal between Microsoft and Nokia be enough to save either company’s mobile business?
  • Will there be a shift in focus from app quantity to app quality?  In a market with 100s of thousands of choices (and counting), how will new publishers and developers break in?  Will the discouraging odds of getting noticed drive would-be app developers to other platforms?
  • Will the emerging dominance of mobile computing cause new businesses and business models to optimize first for mobile (rather than first for PC, which is typical now)?  What are these businesses likely to be?
  • How can domestic companies compete with international competitors, particularly in markets with greater long term upside than in the U.S. (Brazil, China, India)?
  • Is Facebook becoming like AIG … getting too big and central to fail?
  • Is the social aspect of social networking just a fad?  Will the focus of social platforms be entirely different 5 to 10 years from now, i.e., a bigger, broader purpose?
  • Is the longevity of today’s stars such as Groupon and Zynga determined mainly by their latest innovations, or have they created sustainable, defensible models worthy of continued investment?  Will these companies become platforms on which entire ecosystems can be built, creating opportunities for new businesses and consumer benefit?
  • What will be the next significant consumer or B2B behaviors to be disintermediated by mobile?
  • Will mobile users tolerate mobile advertising, and does it depend on format?  Will mobile advertising be effective?  If the answer to either of these questions is “no”, what business models will justify additional investment?
  • Are there any limits to what people will purchase on a mobile device (mcommerce)?

Of course there are countless other questions one could ask.  Now that Meeker has broadened her scope from market analyst to business builder, I hope she will see fit to take her presentations to the next level.  But Mary, if you’re listening, can you try to keep it under 60 or 70 pages? 😉

Broad and unclear patent awards destroy more value than they protect

December 23, 2010 § Leave a comment

Patents are an important method for protecting IP, and create value for investors, but when awards are both broad and unclear, the cost of licensing fees and the threat of legal action can stifle innovation and investment. Location-based mobile services are driving growth and providing benefit to a lot of people, so let’s hope that the recent patent awarded to WHERE Technologies, which their CEO calls the “Mother of all Geofencing Patents”, includes loopholes you can drive a drive a truck through. Unfortunately, it may take a legal claim to bring that clarity.

Android’s insidious plan to dominate the world

December 23, 2010 § Leave a comment

Andy Rubin Tweeted 300K Android phones activate/day … @ 6.9B people worldwide, 50% mobile phone penetration, and global smartphone share of 15% by 2014, Android’s current sales velocity would theoretically result in 100% penetration of the smartphone market in 4.7 years. That is, if it weren’t gaining momentum.

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