One summer as a college student, I worked reading meters for a local natural gas utility. That company’s business model was straightforward: The more natural gas a customer used each month, the more the utility company got paid.
Fast forward 40 years: Natural gas, electric and water companies still charge by usage. Soon, I believe, so will cloud computing companies.
What’s one utility that basically ignores usage-based pricing?
It was not always so. Remember the original America Online pricing plan? It charged customers a monthly rate of $9.95 for the first five hours and $2.95 for each hour after that. Who disrupted that business model? Internet service providers such as AT&T and Netcom did. These companies introduced the flat-fee, all-you-can-use model of $19.95 per month.
Today, ISPs such as AT&T, Verizon and Comcast still largely offer flat-fee plans that ignore customer usage patterns that grow daily. (You can determine your digital footprint at www.emc.com/digital_universe.)
With Web 2.0 companies such as Google, YouTube, Bit Torrent and Hulu consuming huge amounts of Internet bandwidth—and with corporate enterprises in the early phases of rolling out compelling video applications like telepresence conferencing—the flat-fee usage model of the Internet is not sustainable.
The Internet is not a utility with infinite capacity. It is, rather, quite finite. Yes, with huge advances in fiber transmission, the capacity continues to grow, but it can not expand forever.
What goes around, comes around.
Cofounder and CEO of AOL Steve Case got the model right in 1996. While the FCC and Congress talk about (and may actually pass) feel-good legislation like Net Neutrality, I predict that within one year, large Internet service providers will take a page from AOL’s marketing book and bring back pay-as-you-go bandwidth usage pricing.
And for most consumers—and small businesses—they just may see their monthly charges drop.