The traditional telecom pricing model is to charge for the basic service (voice connectivity), and you get other things on top for free. That model has largely been replicated on the Internet — users pay access providers, and applications like Yahoo!, Google, and Amazon.com have to find ways to monetize something other than access. A good part of the dotcom bubble was due to the fact that Web-based companies couldn’t “monetize” their traffic, and charging users directly was off the table. The companies that weathered the storm and prospered figured out alternative revenue streams. (Value-added services for Yahoo!, contextual advertising for Google, and transactions for Amazon.)
Now, along comes the broadband Internet. We seem to be proceeding in the same direction, with application providers finding indirect ways to monetize their usage.
But what if the connectivity were free, the applications were free, and users paid only for the add-ons? Could that ever work?
Well, Skype points out a future in which voice telephony is free, and revenues come from ancillary services like voicemail. And now, Sony has announced that it plans to release massively multi-player online games in which users pay only for add-ons and objects, not for access to the game itself. (Second Life already has a model somewhat like this.) Meanwhile, mobile phone ringtone revenues are zooming past $4 billion annually, even as basic telephony revenues stagnate.
These are true killer apps. Online gaming in particular is rapidly on its way to being, at the very least, the television of the 21st century. Is it too hard to imagine broadband being free, and the virtual economies of in-game objects and customized communications features becoming the “real” economy of telecom?