7 ms·

Business Model 1: Build your own services and throttle everyone else's services unless they pay a premium (in which case your own services would be cheaper, bu

Business Model 1: Build your own services and throttle everyone else's services unless they pay a premium (in which case your own services would be cheaper, but the profit they get from their own services must be higher than the profit they get from NOT selling the bandwidth their premium service uses, to third parties). Let's put it this way, if a hotel builds a Jacuzzi, you're argument is that the hotel owner will only let their own family and friends use the Jacuzzi whereas they will charge anyone else more money to use it. But the time their buddies are using the Jacuzzi could be sold for a fee to the third party, so in order for them to rationally do this, they must gain enough favors that it justifies them to NOT make the extra profit. In case of the ISP scenario, the Verizon Music better offer them higher profitability than letting it be used by actual Spotify and charging them. If they charge Spotify's $5 per month per user, then Verizon Music better bring them same or higher revenue or else running Verizon Music isn't worth it. Business Model 2: Invest in infrastructure and try to take over bigger market. You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? We have reasons to believe that even when companies are very good at doing something internally, the parent company sells them off because it's a more profitable model.

outsidetheparty 9y ago
Because it's obvious. Business model 2 involves significant capital expenditure. Business model 1 involves the same profit without the risk; all they have to do is cut deals and act as rent-seekers on their existing infrastructure. They'd have to be fools to go for model 2.
- splintercell 9y ago
  You're not thinking it clearly. As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure (even if you assume a bully who is ripping people's lunch money to invest some of that lunch money into a gym membership). If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. The capital expenditure is still there. On the top of that, they will have to gain expertise in a new field. On the other hand, investing in their own infrastructure makes sense because this is their own domain and this is how they got into this position at the first place.
  - grzm 9y ago
    > You're not thinking it clearly. Your useful comment reads just as well without this. While you may think they're not thinking clearly, stating so is unlikely to convince them of your argument.
  - callalex 9y ago
    >If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. Not really, they could just charge an additional $10/mo for users to access Spotify and people will start to choose Verizon Music since it is half the price, even though it is worse, which then bleeds Spotify dry.
  - westernmostcoy 9y ago
    > If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. This is the problem though. What happens when they build Verizon Music and then charge people to use (or otherwise harm access to) Spotify?
  - kevin_b_er 9y ago
    They do not have a build a service as good as spotify. They just have to force spotify to be more expensive by rent seeking. They make money either way.
  - outsidetheparty 9y ago
    > As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure How so? How does eliminating net neutrality give them incentive to improve their network? You've provided no support for this at all. (In which you have much in common with Pai!) if it were as simple as "more infrastructure equals more profit" then they'd already be building more infrastructure, neutrality rules or no. > If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify But that's the point: they wouldn't have to make a better service. All they'd have to do is throttle Spotify's traffic down to the point that their own service seems preferable. Or (more likely) just extract a toll from Spotify in exchange for not doing that.
AnthonyMouse 9y ago
> You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? There are two reasons they would do that. The first is price discrimination. Suppose Spotify makes $2/month worth of profit but uses $0.05/month in bandwidth. Now Verizon can charge them $2/month for that amount of bandwidth and take their entire margin. Even if Spotify nominally continues to exist, they now have no margins to reinvest or use to attract new private investment, so they're walking dead. Which harms customers because now Spotify can never improve their service. And if Verizon does have a competing service (see also: TV and phone) then Verizon's service gets an insurmountable competitive advantage. Which leads to the second reason, which is to extract monopoly rents. Suppose Spotify charges $10/month because they have competitors, so they can't charge more without losing business. But if they had no competitors then they could charge $25/month. Which means that Verizon can charge $25/month if they can get rid of all the competitors, which they can do by just charging them all unsustainably high data prices. Hotels can't do this because hotels have real competition.
- cmdrfred 9y ago
  What happens when Spotify emails its customers saying "sorry we can't provide service to Verizon customers anymore, they charge us too much" Some may stay and downgrade their service as they don't require as much bandwidth and some may leave Verizon entirely. It's not all roses for them. Then Comcast, AT&T, Google or anyone else frankly begins offering "True unlimited full access internet" and eats Verizon's breakfast, lunch and dinner. Meanwhile someone creates a VPN service to get around the blockade.
  - yoshamano 9y ago
    Netflix tried something similar a few years ago and it turned into a huge mess. https://www.theverge.com/2014/6/4/5778770/netflix-warning-members-when-service-providers-cause-bad-speeds https://www.theverge.com/2014/6/4/5778770/netflix-warning-me... https://qz.com/688033/netflix-launched-this-handy-speed-test-so-you-can-go-shame-your-internet-provider/ https://qz.com/688033/netflix-launched-this-handy-speed-test... https://bgr.com/2014/06/11/netflix-video-streaming-speed-test/ https://bgr.com/2014/06/11/netflix-video-streaming-speed-tes...
s73ver 9y ago
History. History is the reason why they would not go for business model 2.
intended 9y ago
American Telecom companies have demonstrated that they will follow model 2. Its very surprising that people argue about these businesses in the hypothetical. America has only a few Telecom players. They will remain a few telecom players because fundamentally telecom has deep barriers to entry. And these players have a long history of hugely anti consumer moves, laziness, deceit, cabal like behavior. I really do not understand this, and hope someone can shed light on it. Why do people talk about these firms, and trust them to act as model businesses. 1) Are many americans unaware of the history of malifide actions by telecom firms? (colluding to drive down prices during auctions, not building the network they were given tax breaks too, already existent rent seeking behavior and attitudes) 2) Is there some other principle that they believe these firms will follow, that overrides the obvious business incentive to cheat? I don't get it.
- therpe1 9y ago
  > Its very surprising that people argue about these businesses in the hypothetical. I think this is standard operating procedure for conservatives. They provide extremely speculative theoretical arguments based on over-simplified and over-determined models to justify their policies. They don't ever point to real-world, historical data to demonstrate their thesis. When your committed to good ideology rather than good policy you have to be willing to make trade offs. > And these players have a long history of hugely anti consumer moves, laziness, deceit, cabal like behavior Yes, there is plenty of actual historical data pointing out the tendency of US telecoms to seek risk-free profits. The US probably has the least competitive telecom market in the world. This is common knowledge [1]. The idea that these extremely non-competitive firms can be given more power and they'll "innovate" is laughable. [1] http://www.economist.com/node/17800141 http://www.economist.com/node/17800141
intended 9y ago
Well timed - heres an article which has a list of various crap these firms have pulled http://www.theverge.com/2017/4/26/15439622/fcc-net-neutrality-internet-freedom-isp-ajit-pai http://www.theverge.com/2017/4/26/15439622/fcc-net-neutralit...

outsidetheparty 9y ago

Because it's obvious. Business model 2 involves significant capital expenditure. Business model 1 involves the same profit without the risk; all they have to do is cut deals and act as rent-seekers on their existing infrastructure. They'd have to be fools to go for model 2.

splintercell 9y ago
You're not thinking it clearly. As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure (even if you assume a bully who is ripping people's lunch money to invest some of that lunch money into a gym membership). If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. The capital expenditure is still there. On the top of that, they will have to gain expertise in a new field. On the other hand, investing in their own infrastructure makes sense because this is their own domain and this is how they got into this position at the first place.
- grzm 9y ago
  > You're not thinking it clearly. Your useful comment reads just as well without this. While you may think they're not thinking clearly, stating so is unlikely to convince them of your argument.
- callalex 9y ago
  >If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. Not really, they could just charge an additional $10/mo for users to access Spotify and people will start to choose Verizon Music since it is half the price, even though it is worse, which then bleeds Spotify dry.
- westernmostcoy 9y ago
  > If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. This is the problem though. What happens when they build Verizon Music and then charge people to use (or otherwise harm access to) Spotify?
- kevin_b_er 9y ago
  They do not have a build a service as good as spotify. They just have to force spotify to be more expensive by rent seeking. They make money either way.
- outsidetheparty 9y ago
  > As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure How so? How does eliminating net neutrality give them incentive to improve their network? You've provided no support for this at all. (In which you have much in common with Pai!) if it were as simple as "more infrastructure equals more profit" then they'd already be building more infrastructure, neutrality rules or no. > If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify But that's the point: they wouldn't have to make a better service. All they'd have to do is throttle Spotify's traffic down to the point that their own service seems preferable. Or (more likely) just extract a toll from Spotify in exchange for not doing that.

AnthonyMouse 9y ago

> You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? There are two reasons they would do that. The first is price discrimination. Suppose Spotify makes $2/month worth of profit but uses $0.05/month in bandwidth. Now Verizon can charge them $2/month for that amount of bandwidth and take their entire margin. Even if Spotify nominally continues to exist, they now have no margins to reinvest or use to attract new private investment, so they're walking dead. Which harms customers because now Spotify can never improve their service. And if Verizon does have a competing service (see also: TV and phone) then Verizon's service gets an insurmountable competitive advantage. Which leads to the second reason, which is to extract monopoly rents. Suppose Spotify charges $10/month because they have competitors, so they can't charge more without losing business. But if they had no competitors then they could charge $25/month. Which means that Verizon can charge $25/month if they can get rid of all the competitors, which they can do by just charging them all unsustainably high data prices. Hotels can't do this because hotels have real competition.

cmdrfred 9y ago
What happens when Spotify emails its customers saying "sorry we can't provide service to Verizon customers anymore, they charge us too much" Some may stay and downgrade their service as they don't require as much bandwidth and some may leave Verizon entirely. It's not all roses for them. Then Comcast, AT&T, Google or anyone else frankly begins offering "True unlimited full access internet" and eats Verizon's breakfast, lunch and dinner. Meanwhile someone creates a VPN service to get around the blockade.
- yoshamano 9y ago
  Netflix tried something similar a few years ago and it turned into a huge mess. https://www.theverge.com/2014/6/4/5778770/netflix-warning-members-when-service-providers-cause-bad-speeds https://www.theverge.com/2014/6/4/5778770/netflix-warning-me... https://qz.com/688033/netflix-launched-this-handy-speed-test-so-you-can-go-shame-your-internet-provider/ https://qz.com/688033/netflix-launched-this-handy-speed-test... https://bgr.com/2014/06/11/netflix-video-streaming-speed-test/ https://bgr.com/2014/06/11/netflix-video-streaming-speed-tes...

s73ver 9y ago

History. History is the reason why they would not go for business model 2.

intended 9y ago

American Telecom companies have demonstrated that they will follow model 2. Its very surprising that people argue about these businesses in the hypothetical. America has only a few Telecom players. They will remain a few telecom players because fundamentally telecom has deep barriers to entry. And these players have a long history of hugely anti consumer moves, laziness, deceit, cabal like behavior. I really do not understand this, and hope someone can shed light on it. Why do people talk about these firms, and trust them to act as model businesses. 1) Are many americans unaware of the history of malifide actions by telecom firms? (colluding to drive down prices during auctions, not building the network they were given tax breaks too, already existent rent seeking behavior and attitudes) 2) Is there some other principle that they believe these firms will follow, that overrides the obvious business incentive to cheat? I don't get it.

therpe1 9y ago
> Its very surprising that people argue about these businesses in the hypothetical. I think this is standard operating procedure for conservatives. They provide extremely speculative theoretical arguments based on over-simplified and over-determined models to justify their policies. They don't ever point to real-world, historical data to demonstrate their thesis. When your committed to good ideology rather than good policy you have to be willing to make trade offs. > And these players have a long history of hugely anti consumer moves, laziness, deceit, cabal like behavior Yes, there is plenty of actual historical data pointing out the tendency of US telecoms to seek risk-free profits. The US probably has the least competitive telecom market in the world. This is common knowledge [1]. The idea that these extremely non-competitive firms can be given more power and they'll "innovate" is laughable. [1] http://www.economist.com/node/17800141 http://www.economist.com/node/17800141

intended 9y ago

Well timed - heres an article which has a list of various crap these firms have pulled http://www.theverge.com/2017/4/26/15439622/fcc-net-neutrality-internet-freedom-isp-ajit-pai http://www.theverge.com/2017/4/26/15439622/fcc-net-neutralit...