Tuesday, April 17, 2007

Competition, Market Penetration, and the Digital Divide

The International Herald Tribune carried a story not long ago that lead to a bout of reflection about LUS' telecom utility. It made me wonder: is there a point where marketing and digital divide issues come together? Can serving the common good also be smart marketing?

The Tribune story recounts a situation emerging in France that bears watching here in Lafayette. The French Fiber to the Home market is in the midst of a major expansion and, at least in a few places, these new networks are competing with each other. That is, for the companies, a potential problem. Competing networks must gain a minimum number of paying subscribers per mile (or kilometer) in order to make back their investment. With only one network building itself up it is pretty easy to get the minimum number of subscribers... but with two it is twice as hard....and with three or more there simply may not be enough room in the market for all to survive.

The new entrants are betting that they'll get a big enough market share to survive. There are only two basic strategies: 1) take established subscribers from the incumbents and 2) create new subscribers. A smart new competitor has a clear strategy for doing both.

In Lafayette
The situation in Lafayette bears a interesting resemblance to the one in France: In short order there will be three networks vying for subscribers in the wired telecommunications market. Cox is and AT&T is preparing to invade its opposite numbers' monopoly market. LUS will come on the scene with a high-powered, low-cost alternative to both. It's success will depend upon taking subscribers from the incumbents--and on creating new subscribers.

The basic strategy for taking subscribers from the old incumbents is straightforward: offer a better product for a cheaper price. LUS has made it abundantly clear that it intends to do just that--and with a home-town, voter-approved alternative it should do well on that score.

It isn't so clear that LUS has a well thought-out strategy for creating new subscribers.

The French Response
French purveyors of high-speed internet are faced with a market in which only 60 percent of the country's households have computers. Creating new subscribers will mean convincing folks that don't have a computer that they ought to get one in addition to purchasing the service.

"If one-third of the people in a building do not own a computer and see no reason to get broadband, it becomes a serious financial issue," Fogg said. "Some Internet companies have offered incentives for people to buy computers, but Neuf has taken it to the ultimate level in offering the computer themselves."

Neuf (one of the triple-play video/phone/internet providers) is now offering a package called "easygate" which includes a Linux-based computer stocked with open source apps. It is, with inimitable french styling, a handsome box. Flicker user nitot's caption accompanying the CCed image at left describes its functionality:
"A DSL modem plus a low-end PC in a single box, running Linux, Firefox and a few apps, leased to subscribers of the Neuf Internet broadband service. "
The idea is easy to abstract: reduce the hardware barrier to as little as possible. if a major impediment to selling your internet service is that a large portion of your potential customer base doesn't want to buy your modem service because they don't have a computer then put the computer in the modem and lease it along with the modem. They can try it without making a big-ticket computer buy. Neuf isn't going the pure route, though. If you want to use it like a regular computer you'll either have to supply the "peripherals" yourself or pony up separately for a monitor and a keyboard/mouse/video camera packages. (See the photo at the top.) To sweeten the pot the computer comes equiped with several specially skinned version of Linux (designed for differing levels of expertise) and an open source browser, word processor, and spreadsheet.

An all-in-one package—cheap and convenient. And designed to grow a new market segment devoted to its supplier, not just to battle for a group of established users who already have equipment and a provider.

With the coming era of convergence the basic impulse represented by the Neuf Easygate package could easily be extended. Settop DVR boxes are rapidly becoming the standard among digital cable customers. What you have with one of those babies is a hard-drive equiped computer with enough firepower to drive digital video—no mean feat. For a minimal amount more that same computer could be equiped with Linux, a bit more ram, another few cheap I/O interfaces and, presto changeo, you've got: ......a Tivo. That's precisely what TiVo is and with several of the major cable companies having cut deals to put TiVo software on their boxes (including Cox (yes, our Cox) and Comcast) TiVo has already designed cable-box software.

TiVo's settop box deals are proof of concept: you can marry a Linux computer and a settop box. The final step could be LUS' to take. Why not liberate the computer side of that sort of box? With special software and the coming wave of new, digital TV's the screen could be the TV and all you'd need in addition would be an inexpensive wireless keyboard and a the purchase of the internet subscription to be online. Putting your internet computer inside the settop box would sneak internet-capable computers into the maximum number of households possible and lower the barriers to entry to the bare minimum.

It's hard to think of another strategy more likely to grow the market for LUS' product--nor one more likely to bridge the digital divide.

Maybe smart marketing and pursuing the common good need not be too far apart.

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