Friday, 7 December 2012

Not like selling Mars bars

I found myself explaining the new Home::1 tariff yesterday, in the pub, as you do, and handling the question "Do ISPs pay by the gigabyte then?"

It is tricky - in some ways we do - in that the more people download the more we pay, overall, but it is more complex. We pay based on usage levels, and it is the highest levels in the day that matter. The challenge we have, and why we are "reassuringly expensive" is that we try and ensure we buy enough capacity to not be a bottleneck, even at those peak times. It would be easy to buy a lot less, and slow people down a tad in the evenings, but we don't.

This leads on to the fact that the new tariff has 25GB as the starting level monthly quota, and why we picked that that figure.

Interestingly, existing customers are moving to the new tariff, even where that means paying slightly more than before. This suggests we have the level right. What is odd is the few comments on web pages that 25GB is measly and clearly not enough.

It is, sadly, not like selling Mars bars! We cannot simply look at what gigabytes cost us, add a margin, and sell them. We have to try and pitch the tariff at a level, and to the right audience of customer types, that results in usage that causes a cost that is less than we collect in revenue. There are times of day which are not "peak" usage, and in those times extra usage is, in effect, free for us - but if everyone started using bandwidth at those times they would become peak and cost us a lot of money. The cost of bandwidth is a lot compared to what people pay. If we had only one customer, the cost of providing their bandwidth would be thousands a month - so it is a balancing act.

To that end we picked 25GB, not because 25GB "costs us £X" where X is less than the £25 we charge for the service, but because that usage level is adequate for the typical home user, and the typical home user will have a usage pattern such that the average cost to us for such users is less than the £25 we charge.

Now, 25GB is quite a lot, really. We actually looked at home users download rates, and concluded that the average home user was downloading around 14GB a month even when they have an allowance of 100GB or more of off peak download. The existing units based tariff, at the entry level of 2 units, does allow 100GB off peak (and even more in middle of night). So the 14GB is not because of a limit on usage, it is just naturally what home users are using. Looking only at those that buy just 2 units the average user downloads 10GB a month. So, 25GB is a lot and allows quite a bit of room for changes in usage patterns as more people do occasionally download and stream video.

Of course, a lot of new customers have no idea what they use, so they look at 25GB and ask "is that a lot?", or even "is that enough?".

Given the slightly negative comments that we have seen, I wonder if we have picked 25GB based on a scientific assessment of what is sensible, and we should perhaps have picked something more on an emotional level, and what people think looks like a lot. If we had picked 50GB, for example, it may seem more acceptable. Ultimately we don't expect it to make a big difference to the costs. As we see now, even giving people 100GB the average user will use what they use. Of course this logic does not quite extend to the idea of an "unlimited" tariff, as that starts to attract a different sort of customer who will download solidly rather than using what they need, just because they can. With bigger ISPs that is viable, because they have few enough people "exploiting" the unlimited usage that the average is sensible. In effect the lighter users all pay for that high usage of a few.

So, changing to 50GB entry level and higher usage of 150GB or 250GB instead, and, of course, making sure the existing customers benefit from the change too.

17 comments:

  1. More a question than a comment. On the "normal" (not home::1), what does make the cost so different (especially on 20CN) between daytime and off-peak?
    Also (if I'm not too intrusive) with the units price structure, I would imagine that most users are off-peak users and so the daytime bandwidth usage to be quite low. Are you paying BT (and/or other upstream providers) a different tariff day/off-peak?

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    1. It is down to trying to balance the usage sensibly over the whole day. 20CN costs around 3 times 21CN on the BT bit. We are taking something of a gamble on the new Home::1 as 20CN is finally becoming a diminishing fraction of the number of lines. We don't pay differently, and the units based pricing is based on mostly business customers. Ultimately that model has led to evening becoming a bit higher, but it did not start that way.

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  2. I would de-emphasise the amount completely. My dad for example, uses about 1-2GB a month, but has absolutely no idea how much he uses or needs. But if he saw a limit would be scared off because he has no way to evaluate if it's what he needs or not.

    I'm not suggesting that you hide the limits in any way at all, but I do think that it's simply unnecessary to go out of your way to tell people. If you just put "plenty of data" for £25 and put the actual amounts at the bottom of the page I think it wouldn't scare off your target so much and the information is still right there.

    I guess that doesn't quite fit the A&A philosophy but as long as you don't hide the amount or make it at all difficult to see I don't see it as a problem.

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    1. As you say, not quite the A&A way, and I would be wary of putting it in smaller print as a *unlimited, or a fair usage policy type thing. A good point though. I'll think about that on the headline stuff.

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    2. to me at least...

      "plenty of data*" -> "that means 25Gb/mn, our research show most home users use 14Gb/mn more costs x/Gb"

      Is a lot different from:-

      "unlimited*" -> "subject to a fair usage policy, eg, unlimited until we decide it isn't"

      At least that my interpretation of most 'fair usage' policies.

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    3. As a more clued-up user I was monitoring my usage before deciding to switch to A&A because I wanted to make sure I wasn't going to use too much during the day. My total monthly usage is somewhere around 60GB split between DSL and cable, so it's quite possible that I'd bump a 5GB daytime limit. At the moment I've got things adjusted a bit far the other way such that only my machine (not used in daytime) and the Android phones are talking IPv6 to the outside world, and the load balancing heavily favours the cable line. To me, having IPv6 to play with and a static IPv4 address so I can run my own mail server are the reasons why I moved in the first place.

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  3. At those usage levels, this has suddenly become a lot more interesting to me.

    I'm with AAISP as I'm self-employed and work from home, and need both a high-quality service and IPv6 for work. Unfortunately, since moving to AAISP, the "wait until 6PM before you start hitting Netflix or downloading stuff" rule has caused a bit of friction with the teenaged members of the household who are normally home in the early afternoon.

    250G would be plenty of usage, while costing slightly less than my current Be line + 4 units connection. Of course, if I did switch, my usage peak would probably move to the afternoon, instead of the evening -- which is perhaps not so good from your point of view!

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    1. Well, we are expecting some movement...

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  4. home::2 50Gb for £30

    home::3 100Gb for £40

    easy peasy :-)

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  5. Trying to attract the 'right' users?

    Why not have a tarrif based upon how highly they rate you on bbwhatever

    a tarrif based upon their level in WoW

    a technical challenge tarrif - question every month - login, answer correctly - money off

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    1. Offer half-price IPv6 data rates. That might even push me into updating the firmware on my router to get it working... :)

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  6. Why not offer a tariff that has 25GB during peak times and 100GB during off-peak times?

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    1. That is what the units based tariff does, at various levels.

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  7. Do you offer a pure IPv6 service yet? I mean not even a IPv4 /32 on the PPP interface...

    Just toying with an idea.

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    1. I think we can, and we have a NAT64 gateway and trick or treat DNS for it. Not sure I would recommend it.

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    2. Was thinking pure IPv6 for IPv6 connectivity only - no NAT or other fiddling required.

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