Is Free Data Going To Be the Next Free Shipping?

Smartphones are wonderful. They have changed how people view and interact with the world around them. They also cost a lot more money than those old phones used to, in case you hadn't noticed.

US households cell service costs have increased 50 percent in the past six years - and that at a time when household incomes have stagnated or declined.

So the telecom industry faces a conundrum: it's future growth is predicated on ever increasing use of and payment for access to data, but the wherewithal of its target market to finance that growth plan is highly suspect.

Which is why the notion of paying for data as a means of encouraging greater usage is brilliant. Diabolical perhaps, depending on your economic and ethical mindset, but smart nonetheless.

What free shipping did for ecommerce, free data may do for mobile data access. The enterprises in question are giving consumers something they want at a price that appears more affordable - or at least more attractive - than the way it was packaged previously.

The question, of course, is at what point the two lines intersect, those being the graphical depictions of demand versus cost. The implication is that this is a temporary fix, a way of keeping the system running until a more sustainable solution is discovered  - or until the economy recovers sufficiently to make it unnecessary. Most observers are betting on the technological solution rather than the economy. JL

Ryan Knutson reports in the Wall Street Journal:

The telecom industry is counting on data use to keep growing, but consumers are keeping a close eye on usage for fear of  higher bills. Companies trying to deliver products or services to mobile devices not only have to sell users on the idea, they have to convince them it’s worth the hit to their data plans.
Earlier this year, Dan Check, the vice president of technology at Slate, was looking for ways to increase traffic to the online magazine’s podcasts. After a bit of brainstorming, he decided to try paying the toll.
Slate told some would-be listeners that the podcast wouldn’t count against the data plans on their smartphones. It turned out that group was 61% more likely to press play.
“I was surprised at what a difference it made,” said Mr. Check, who began the experiment two weeks ago with the help of a company called DataMi. “It turns out people have a really, really high sensitivity to using data.”
When AT&T Inc. rolled out a plan early this year to let companies pay for data its subscribers consume, it looked like a long-odds attempt to get a cut of the valuable traffic generated by sites like YouTube and Facebook. But the idea is starting to get some traction.

Hershey Co. , Hotels.com and eBay Inc. unit StubHub have been taking part in experiments by services that pay users’ data cost or offer bonus data when people visit their websites, sign up for free trials or watch movie trailers from their smartphones or tablets.

The efforts so far are primarily experimental. But if they catch on, they could give carriers a way out of a conundrum: The telecom industry is counting on rising data use to keep its sales growing, but consumers are keeping a close eye on their usage for fear of triggering even higher bills.
The approach is also being monitored by regulators, who worry the practice could give traffic sent by big companies that can afford to cover the data cost an unfair advantage.
In 2013, U.S. households on average spent $913 on cellphone service, a 50% increase from 2007, according to the Labor Department. A fifth of those households spent more than $1,400. The average monthly cellphone bill at Verizon Communications Inc. has risen 3.5% from last year to $161.24, the carrier said Tuesday.
Those rising costs mean companies trying to deliver products or services to mobile devices face an extra hurdle: Not only do they have to sell potential users on the idea, they also have to convince them it’s worth the hit to their data plans.
A new service launching this week called Freeway allows users of AT&T smartphones to access a number of sites, including StubHub.com and Expedia.com, data free. Users of the app, which is made by a Seattle-based company called Syntonic, can also watch a trailer for the independent film “Frank vs. God” without it counting against their data plan.
David Doctorow, Expedia’s senior vice president of global marketing, said paying for data helps the site connect with its users, particularly when they are traveling and more likely to be sensitive about data usage.“We see the sponsored-data industry as one to watch, as it could be quite relevant for travel,” Mr. Doctorow said.
Kickbit, a service launched last year, allows smartphone users on prepaid plans to earn chunks of free data when checking out or signing up for new services. One recent offer, for instance,
gave users 200 megabytes that could be used any time if they signed up for a seven-day trial with Hulu.
Kickbit has been downloaded more than 100,000 times in the Google Play store. Susie Kim Riley, chief executive of Aquto, which launched the service, said that in exchange for engaging with brands, its users collectively earn tens of thousands of gigabytes of data each month—the equivalent of hundreds of hours of high-definition videos.
The offers take advantage of a shift in Americans’ behavior toward using smartphones more often for entertainment and shopping.
Break.com, a video humor website targeted at young men, plans to start an experiment next week that allows AT&T customers to use its mobile app without it counting against their data plan. The site has 50 million total viewers, and users spend a cumulative 14.5 million hours on its mobile site and mobile app each month.
Paying for all that data use could add up. Matt Diamond, chief executive of Defy Media, which owns Break.com, said the economics are attractive only if the number of viewers increases.
“If it doesn’t increase the amount of time they spend on it, then we’re just spending money we didn’t need to,” Mr. Diamond said.
Advertisers are approaching the offers with cautious optimism. Paying for data could draw in consumers, but it could also bake more cost into mobile advertising, said Jeff Malmad, who oversees mobile for North America at Mindshare, a global marketing agency.
“Ultimately we’re going to want to watch this set of people and see if they come back over time and subscribe to podcasts,” said Mr. Check, of Slate, whose free-data test ended this week. “Whether or not these people will stick is still an open question. But we know that people that don’t press play aren’t going to stick.”