How much can they get?

Fascinating confluence of ideas today. Time Warner Cable announced that it's backing off (for now) its plans to charge download caps for its customers. This from Ryan Singel's post today on wired.com:

The company's rationales never made sense to customers — or us, for that matter. For one thing the company's balance sheet shows that in 2008 its cost for bandwidth fell by more than 10 percent, even as it gained customers and increased revenue.

In a statement, TWC made clear isn't giving up on the idea -- it just lost a public relations battle, saying that it was "shelving the trials while the customer education process continues."

Indeed, there's no cost basis for the plans to charge more; this is just a 'how much can we get' moment. But more than that - if consumers are downloading more with Web 2.0, aren't the omnipresent, intrusive, Flash-based ads significant contributors to the increase in bandwidth traffic? I always figured that suffering these obnoxious ads were the price I had to pay for the non-fee-based content that I read and watch. I thought that was the deal, and was willing to accept it. If I wanted to check out MSNBC.com's content, I watched their ads. Charging consumers more for the privilege of downloading a company's advertising assault is just too much.

This is all too reminiscent of text message pricing by the wireless carriers. Back in September, Cnet.com reported that Congress was questioning the wireless carriers about their pricing of texting plans. The price of texting doubled over the prior 3 years industry-wide. The following is from Sen. Herb Kohl, chairing the Antitrust Subcommittee in the Senate Judiciary Committee:

"Some industry experts contend that these increased rates do not appear to be justified by any increases in the costs associated with text messaging services, but may instead be a reflection of a decrease in competition, and an increase in market power, among your four companies," Kohl said in the letter.

The interesting bit of that quote is "Some industry experts contend..." -- interesting because, you see, it's all a big secret. The government had to ask because the industry players refuse to release the data on which their pricing is based. Even more interesting is that text messaging is a special kind of service. Its costs do not correlate to normal bandwidth costs, because the SMS message rides for free, like a hobo riding the rails. These short messages are sized so that the packets can travel at no cost in blank spaces between larger packets. The carrier does not pay for queuing, storage, or bandwidth. There is no transaction cost, just a heck of a lot of revenue opportunity by convincing consumers that use correlates to cost. Not so.

So I've been thinking about all of this, and then listened to an interesting interview with Umair Haque on Harvard Business Review. Haque has been writing about the transformation businesses must make in their leadership. We need to quit thinking about making incremental differences -- in product design, pricing, delivery -- using old business models. We need to think about where the market is going to be, and think how it would be possible to meet those challenges. This is radically different than asking how can we get more out of the markets we serve (like text messaging, or cable Internet subscriptions...). Consumers are fed up, and US business is almost without exception refusing to acknowledge that they must provide real and lasting value by transforming the way they even think about the value chain. I'm seeing lots of innovation happening outside the US borders, with companies who are addressing emerging markets and anticipating where the world is going to be, not where it is today.

It's time to get our heads in the game. The playing field has changed. Throw away the old rule book and let's write some new ones.