Are Carrier Fees Killing LBS?
At the People Tracking and Location conference in Chicago today, things got heated when an attendee asked a panel how developers can make money when carriers, specifically Verizon Wireless by virtue of it being the lone carrier represented, charge them one, large flat fee for data.
“Your minimum data plan is 1Meg, but your average device uses 200MB,” James Artimez, executive vice president of LBS vendor Traxxitt, told Verizon exec Ira Gorelick, referring to Verizon’s retail business. “There’s no flexibility to buy a pool of data and parse it how I want.”
This is a complaint that Gorelick, a senior manager of business development for Verizon Wireless’s Open Development initiative, is used to hearing. He doesn’t handle pricing at Verizon, but he knows that LBS providers want a lower cost for data. His response is that lower-cost plans do exist, but they are on the wholesale, not retail, side of the business.
“We do have wholesale plans. Come to me and I can structure a plan to give you very inexpensive monthly data,” he said.
Gorelick said that wholesale allows LBS app makers to buy bulk minutes inexpensively, but what they are griping about is wanting cheaper retail plans. Going retail with Verizon requires paying the transport fee, but it allows them to offer apps with a recurring revenue stream through the carrier.
He cited the Kindle as a wholesale example. The price of the data is bundled into the price of a book purchase, something most consumers don’t realize. The LBS provider knows about how many books people read and how large those files would be -- they know how much data they need.
For smartphones on the other hand, there is no fixed amount of data you can have, Gorelick said. “If you bring to me a dedicated fixed location app, I can give you a very low price for that,” he said. For Verizon, it is a matter of that LBS provider having enough volume.
“I don’t have the luxury of buying a half- or quarter-meg plan or a pool of data to spruce up,” Artimez continued. “I’m stuck. You say if I can come up with an application, I can come up with a plan, but that’s not true. Anyone at Verizon will say you can’t do pools. That monthly charge turns out to be the minimum 1Meg plan, plus having to make money on the other side.”
Gorelick’s counterpoint to this was that transport is only one aspect of the entire process. Developers should be making apps that people want and looking at the total package -- they can’t just blame the carriers.
“The implication was that if transport was less expensive, everyone would want these services,” he said. “Transport is only one piece of the puzzle. I’m not convinced that transport is the gating factor, negating factor, the hurdle that is preventing usage. It’s the whole model preventing usage.”
Simon Buckingham, CEO of Zoombak and former Vodafone UK employee, came to Verizon’s defense, saying operators historically have been inflexible in pricing, but that the US is a very different market. With the way the industry is trending and improvements in billing, the flexibility is now there to try and win business and compete. If a developer can bring a genuinely good app with a good customer base to a carrier in the US, the carrier will work with the developer to get a plan that works for it, he said.
Both said that volume is the key, but that's hard to come by in today's nascent, competitive LBS market.
“We’re stuck with [expensive plans] because everyone is jockeying for a position to become an industry leader, but there is no one voice yet,” Artimez responded. “To come to carriers and say, 'We bring you half a million clients to throw up on your map when you are doing your billion-dollar commercials' -- we don’t have that voice yet, so we’re being slapped around, not just by Verizon, but by any carrier.”
— Sarah Reedy, Senior Reporter, Light Reading Mobile