Sunday, February 28, 2010

AT&T's Missed Opportunity on iPad Pricing

I rarely have nice things to say about AT&T, so I want to praise them when they actually do something right. The announced prices of their data plans for the upcoming iPad are very fair and reasonable, especially in the current marketplace. It also shows some smart corporate thinking. They were willing to be very competitive to get in on the ground floor of the iPad. Here's an older story that talks about how AT&T stepped up to the plate to outbid other competitors:

AT&T Brought It's A Game to iPad Bidding

In some ways, the pricing on data plan doesn't seem very generous or groundbreaking. AT&T already charges $29.99 a month for unlimited data on iPhone. Why should it be anymore on the iPad? However, AT&T gets a lot of extra cash from each iPhone it services, both for voice and texting, so if it charged extra for just data on the iPad, that wouldn't be unreasonable. As the story points out, current data only plans offered for laptops and other devices are across the board higher per month for comparable access. Also, it's very likely iPad users will consume a lot more data that iPhone users, so keeping it at $29.99 unlimited is a good deal.

The $14.99 for 250 megs is a little less of a great bargain, because, as a recent Los Angeles Times story points out, almost every real user will quickly go over it and need to pay the higher rate. However, there's no crime in providing a lower cost option (be nice if there was one for the iPhone). And it can be argued that it is a good deal for someone who rarely uses anything but their wifi connection, yet wants the option of cell service in an emergency.

So all in all, kudos to AT&T brass for their upcoming iPad deals!

Of course, this being AT&T Critic, I can't leave it at that.

First, history would seem to indicate AT&T is an evil conglomerate run by soulless machines that only do nice things briefly if it furthers their goal to take over the world and destroy the internet as we know it. (That is, by getting rid of net neutrality.) So, it might be tempting to look at this as temporary effort at fairness and competitiveness that will only last long enough to get them market share, destroy their enemies, and install themselves as gate keepers so they can later create misery by raising rates. Kind of like the cable companies. It's certainly a possibility.

Or, it might be a classic example of a headless, clueless corporation whose executives have no long term plans and simply were forced by Apple to make a competitive offer without any idea of it's longer term implications. This also seems likely, since the pricing plan is completely in contradiction to AT&T's public claims that high data use cannot be sustained unless they "educate" the public to accept tiered pricing. If the public needs to be educated, why not start on the iPad? And if high data use is a big problem, how does AT&T expect to handle millions of new iPad customers on unlimited plans?

The truth is probably somewhere between all these, AT&T is an evil, but clueless, corporation that knows it must be competitive if it wants to be in the iPad business.

The shame here is that AT&T is losing another opportunity (like the one it squandered with the iPhone) to change it's corporate stripes and prepare to compete in the new world of technology. You know, the one where customers expect stuff for free, or low cost, and then reward companies by spending extra money later on stupid things like ring tones and apps that tell jokes.

In particular, the data limit on the lower priced $14.99 plan, while being perfectly fair, is shortsighted. The data cap is deliberately pegged to be something a normal user will have to go over eventually, if not frequently. The Los Angeles Times article points out that the average iPhone user consumes 273 megs of data a month. (Which, by the way, blows holes in AT&T's complaints about a data hog crisis.) So why did AT&T pick a 250 meg limit on the lower priced plan? Because it forces everyone into the higher priced plan.

Now, as I said, this is still a fair business deal. If you're unsure whether you need a connection, or really aren't planning to use it much, $14.99 provides an option, and there's nothing better than customers having options. The problem is, AT&T doesn't understand that you don't want to needlessly bleed your customers. Keep your customers happy, and in the long run, they will reward you.

In the real world, anyone with the money to spare, will probably pay for the higher plan without blinking. And use it. People who are hurting for money, will go for the lower plan. Unfortunately, most of them will quickly find out they go over the limit, and have a choice to make. Dump AT&T all together, or pay more.

This is a mistake. The biggest danger to AT&T is not that it doesn't make enough money from the lower priced plan, it's that the average iPhone user decides they don't want to pay AT&T at all. The iPad, unlike the iPhone, is really a very useful device that is best used with a wifi connection (either free or part of someone's home or business connection). People who don't have a lot of money will be sorely tempted to avoid AT&T all together. And they will be able to do it. This puts further pressure on AT&T's corporate efforts to "educate" people that data isn't free. (It is, AT&T just doesn't want you to know it is.)

It remains to be seen whether the iPad is a device that sits in peoples home's and offices and works perfectly fine without an AT&T connection, or whether it's so useful on the road that it's worth an extra $29.99 a month. AT&T's pricing could actually effect the future of the iPad, as customers try to figure out how best to use it, and software makers design apps based on customer expectations. My guess is that AT&T could potentially train millions of customers not to use their service, simply because they have too low a data cap on the lower priced plan. Millions of businesses, that might be willing to foot a $14.99 bill for their employees to have internet access, might balk at $29.99.

In fact, it might be better for AT&T simply not to even offer a $14.99 rate that customers will quickly find doesn't fit their needs. While corporate suits might like it when customers are suddenly forced into a higher bill, working people don't. From a PR standpoint, AT&T is opening itself up to a lot of complaints by new customers what find out that watching a 3 minuted Epic Beard Man video is just enough to push them over the limit.

A fairer rate would have been 500 megabytes. That way the thrifty iPad user could reasonably function at the cheaper rate. And high end users would still pay for the extra data. Moreover, the iPad is unlocked. Whether AT&T faces any real competition for customers will depend a lot on how happy customers are with AT&T service. Having a large base of customers begin their relationship with AT&T by finding out that $14.99 is just a fake out to lure them into a higher priced plan is not a good start.

But offering a real deal, to keep long term customers happy and to build a happy customer base, is the kind of Net 2.0 thinking AT&T's leadership still hasn't clued into. Back in the AT&T board rooms clueless execs rub their hands with delight. "See, it's great, they get into the lower priced plan at $14.99 and POW, they go over the data rate and KABOOM, pay $29.95! It's genius!"

But this kind of thinking, how much can we rip away from customers pockets for nothing, is a serious problem at AT&T. (The actual price of providing 500 megs vs. 250 megs is nothing, and the difference between providing a customer with 250 megs or unlimited is pennies, certainly not $15.) Instead of thinking of a customer paying $14.99 as someone who is paying $15 too little and needs to be punished, AT&T should think of them as someone who they might lose if they don't provide a realistic option. That $14.99 customer is someone they can try to encourage to use other services, like AT&T's mapping and family tracking apps.

Oh, but those apps are crap, right? And cost too much. Well, maybe that's the real problem. A modern Net 2.0 company loves to have regular customers, at any price, and then use the data to figure out what to sell them. Rather than trying to cap usage, AT&T needs to invest some R&D on coming up with must have services and apps. The real way for it to make money is for a customer to sign up for $14.99 a month, and then also buy five apps from AT&T for $4.99 each. And sign up for a special music channel at $1.99 a month, etc.

Then when the person gets a raise, they'll bump up to $29.99 for unlimited data. Or have kids and buy them all iPads, or recommend AT&T to friends because it's such a good deal. The fact is that people like to spend money. And if you provide them with something they like, odds are they'll give you as much money as they can spare. You don't have to try to beat it out of them or trick it out of them.

Back in the 1970's, that kind of negative business thinking, that the customer was an enemy you had to game, was very popular in corporate America. And it really screwed things up. It's a shame it seems that the leadership behind AT&T still pines for those days. They don't appear to understand they are in a very different world where customers are empowered with information and options like never before. Hopefully, AT&T execs will eventually figure that out and turn toward the light.

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