Tuesday, June 23, 2009

A Spotter's Guide to Motorcyclists

While visiting my folks in the DC area over Memorial Day weekend I saw a ton of motorcycles out for Rolling Thunder. It's nice to see so many people riding, but there were so few of them on the highway back to Chicago that I started to wonder how they all got there. Did they buy a bike in DC, suddenly grow beards (the women as well), and ride through the city only to sell it again?

It's becoming harder to tell the difference between a real motorcyclist and someone who has a $28k fashion accessory sitting in the garage. But this handy spotter's guide might help you determine who's who on two wheels.

Nutcase - Does not own a car and does not own anything that requires a car to move it. Usually single because the pillion is reserved for changing positions while riding and other riders tire of their impatience to "get back on the road."
Fashion Sense: High, though unintentional. Usually wears gear from the '70s--a look people now pay money for (Check this out on Amazon, and notice the choice of things customers also purchased.)
Rides: AMC-era Harley, Honda Interceptor/Sabmag, BMW R-anything less than 100, the bus
Tell tale: Newspapers stuck in front of jacket for warmth.
Look for them... In a one-man tent behind a gas station. Often with tools laid out around the bike.

Hardcore Rider - If they have a car and are not transporting anything larger than a couch, will take the motorcycle.
Fashion Sense: Low. Usually seen wearing the absolute dorkiest gear around. Have no conception of "looking cool."
Rides: Modern BMW, Kawasaki KLR
Tell tale: Never steps off the pegs, even while high-siding.
Look for them... in the middle of a snow storm drinking warm coffee prepared in the handlebar-mounted coffeemaker adjusting their GPS to the sun's declination.

Daily Rider - Commutes daily on their motorcycle, but will take the car if the weather gets iffy.Fashion sense: Low to Medium. Wears either turbo-bright neon hi-vis or dull but safe motorcycle jacket. Has a personal conception of what "cool" is and hopes others appreciate it. Is often wrong.
Fashion Sense: Medium, usually biz-cas.
Rides: BMW, Suzuki V-Strom, Triumph cruiser/standard, Suzuki Bandit, something old and lime green
Tell tale: Full-face flippy helmet with bluetooth connection, and backpack with Starbucks refillable coffee container.
Look for them... On the road between 7-9am and 4-6pm in the high occupancy vehicle lane singing to themself.

Street Biker - Often rides only at night because the roads are open enough to ride fast. No money left to go to the track because it was all spent on a carbon fiber muffler stay. Where legal, removes the helmet within two blocks of mom's sight.
Fashion Sense: Depending on your taste for anime, potentially very high.
Rides: Suzuki Hayabusa, anything with an "R" in it
Tell tale: Listen for quick bursts through the revs through all the gears followed by a very sudden stop.
Look for them... Going 170 mph down a major highway at 12:30am.

The Grand Tourer - Always seen as a couple with the husband up front and the wife riding pillion. For this type of motorcyclist, weekends are made for riding. Usually the farther the better. Has chosen adventure on a motorcycle rather than an RV because they haven't given up on life yet.
Fashion Sense: Exceedingly low. Hawaiian shirts, Jimmy Buffet t-shirts for men. Sweatshirts with applique for women.
Rides: Middle class - Honda Goldwing. Upper-middle class - BMW K1200LT.
Tell tale: Matching communicator helmets with their names stenciled in cursive.
Look for them... Taking yet another bathroom break.

The Harley Biker - Making up for a well-spent middle age, the Harley Biker is usually nearing retirement, has a beer or two before a ride, and has chosen a motorcycle as their sport of choice because golf requires too much walking. Spent nearly as much on Harley-branded gear as on the bike itself. Sees occasional weekend use if the weather's nice enough, which it usually isn't.
Fashion Sense: Compared to other quintagenarians, high.
Rides: Will never buy a "Jap bike," which also includes British, German, Italian, and non-Harley American brands.
Tell tale: Paddle-footing it through the parking lot.
Look for them... In front of you on a mountain road moving at a glacial pace.

The Self-Proclaimed "Biker" - Shares the same traits as the Harley Biker, but rarely if ever rides. Will attempt to impress you with their one or two stories from the one or two times they rode.
Fashion Sense: Low. Wears all Harley gear all the time.
Rides: "I just sold my panhead, and am looking for an XLHCRVGMP."
Tell tale: E-mailing motorcycle jokes to other people.
Look for them... In the accounting department.

Fashionista - Not a true motorcyclist, but has either ridden or posed on the back of one.
Fashion Sense: Very high in a tawdry sort of way.
Rides: Other people's bikes, possibly other people for money.
Tell tale: Deer in headlights look.
Look for them... Getting into nightclubs that would never let you in.

Like John Audubon, I am constantly seeking new classifications of bikers and so could use your help to refine and add classifications. Unlike Audubon, I did not shoot and then eat my subjects.

- Mike

Tuesday, June 16, 2009

Why Isn't the Sky Green?

My fiancee and I were talking about kids tonight, and it got me thinking about how I would handle being a dad. One of the bigger concerns I have revolves around what will happen when our future kid gets to the "why?" phase. I wouldn't be able to fully express the idea of Toyota's Five Whys, so that's not going to stop it. Ultimately, I want to encourage asking why, but I also want to encourage asking it with purpose.

This made me think of the question "Why is the sky blue?" If my future kid--and he or she will be a Future Kid--were to ask me that, my response would be, "Well, the sky isn't blue all the time." Sometimes the sky is red or orange or yellow or purple, indigo, and even black. But it's never green.

So why isn't the sky green?

This absence of green in the sky makes me wonder if this is an explanation for plants being green. Could it be that photosynthesis evolved to take advantage of the one color that the sky doesn't filter?

This is the kind of thought I want to encourage in my kid. But it's also the kind of thinking I like to encourage in people. By refining our fundamental questions we often arrive at unexpected truths or realizations. Unfortunately, we too often stop at asking why once, or we repeatedly ask why without direction.

Why is that?

Thursday, June 4, 2009

Put Your Money Where the Broadband Will Be

The recent bizarro actions of Time Warner Cable help illustrate that data is in a transitional period. Like everyone else, they know that the amount of data demanded by customers is going to go up. They also realize that more and more content is going to be served online rather than over traditional channels like video or network broadcast.

For the cable industry this has the potential to be a Very Good Thing. Right now they have to pay license fees to serve content via video. Usually these fees are not made public, but a 2003 fight between ESPN and Cox gave some insight: ESPN charges $2 per customer. That is probably the highest per customer charge out there, but it illustrates that serving content isn't free--unless it's on the web.

If the cable operators can dump their license fees and serve content that requires no licensing agreements over the web then their costs can go down significantly. For the broadband providers this can work out very well as long as they can resolve the bandwidth costs.

Cable operators, and to a lesser extent, the telcos, are trying to figure out how to handle the increasingly valuable commodity of HSD. In the beginning, broadband was simply a value-add that could leverage the existing network. Their competition was dial-up and the amount of data passed was fairly minimal. But times are changing and new models are being created.

Unfortunately, the approach taken by TWC has not only been a mistake but an embarassment as well. What they are doing is trying to monetize current consumption rather than maximize economies of scale. 

They have taken a myopic view and set pricing that is wildly out of control (est. 700%-1500% markup). If a plan such as this were to be implemented it would rapidly increase churn and open up new markets to competition. Customers faced with $1/GB/mo.--the plan offered by TWC--will prompt many customers to trade speed for price.

As TWC has stated many times, they compete on services not on price. But if they price themselves out of the market, then they won't be competing at all.

The correct approach is to maximize the economies of scale by taking a slight hit now but restructuring the pricing to take advantage of future bandwidth usage. How? The cable operators can drop their price significantly, set a reasonable cap, and then charge slightly more than cost for overages. 

In my previous post I estimated that 500GB/customer/month is the break-even point for if bandwidth costs $.10/GB for the operator and the average customer pays $50/mo. Current usage barely hits 500GB, though. Few customers exceed 40GB, which means the break-even price is $4/mo.

It could work like this using the estimated pricing: [All numbers are per month] Drop the price to $15 and offer a 200GB cap. Price overage at $.12/GB. As bandwidth usage increases, tiers can be added ($30 + 400GB cap).

At $15/mo. nearly every customer will see an immediate drop in price with no apparent effect on their service. Eventually they will get a few $.12/GB overage charges as bandwidth usage goes up. Then they'll start getting more and more. At that point they may decide to move up to a new tier.

The benefits to the customer include:
  • Lower prices now
  • More control over spending (use less HSD to keep your bill low)
  • Even with high usage the pricing can work out better than current pricing
The benefits to the provider include:
  • More goodwill from existing customer base--a price reduction makes people happy
  • As bandwidth usage increases in its usual geometrical pattern the low markup per GB will start to bring in serious income
  • Reduced video costs (start dropping cable channels) can increase the value of HSD
  • The customers will have a number of years to become acclimated to reasonable pricing, rather than one day to get used to getting ripped a new one
Over time the overage charges can be lowered as additional capacity is added to the system and amortized over a span of years. Again, maximize the economies of scale.

The pricing shown above is just ballparking it, of course. The boffins who have access to the actual numbers can throw together something more accurate. But I don't think these numbers are that far off.

TWC, you have a future to confront, but don't screw it up by alienating your customer base. Your actions have prompted a lot of myths out there in the blogosphere. Also, every ISP is watching what you're doing. To the customers who think it's just TWC--consumption billing is coming whether you like it or not.

Monday, June 1, 2009

500GB/mo. Break Even Point for Broadband?

The caps 'n tiers argument basically comes down to a question of cost for bandwidth. The cable side says that costs are increasing, and the consumer side says that costs are decreasing/negligible. To that point the argument is that since the network is in place there is no cost to transferring data, and only potential upgrades to the network will incur a cost.

In other words, bytes are free, cable is not.

This would be true in a closed system such as a home network. The cost to transfer a file from my server to my laptop is practically free. The costs there are my equipment costs and the electricity required to run the devices.

Broadband providers are not on a closed system--they have to connect to the internet backbone and other providers. Unfortunately, the broadband providers are pretty cagey about these costs. In a moment you'll see why. 

Over at the BITS blog at WSJ there is an article that tries to determine the costs of data. The article peters out near the end without an answer, but Dave Burstein offers some insight in the comments.

The data costs work out to about $10k/Gb. According to Burstein, this comes down to somewhere between $.05 and $.15 per gigabyte per customer. If TWC is charging $1/GB then that's an astonishing 700%-1500% markup! If this is true, it makes sense they don't want their customers to know how much the cost to connect is.

But that's not the end of the story, because that only tells us where they are right now.

Using these assumptions we can figure out the break-even point for HSD customers. If the average customer is spending $50 per month for their broadband service then the maximum break-even point is 500GB/mo. (with an average of $.10/GB/customer).

When I first figured this out I was a bit shocked. My expectation was that the number was going to be ridiculously high--say 5TB/mo. But 500GB/mo. is absolutely within the realm of possibility.

I'd like to find some hard numbers on data transfered per month, but I've personally transfered more than 500GB in one month. It doesn't happen often, but it does happen. There are plenty of stories out there of individuals hitting Comcast's 250GB/mo. limit. 

These numbers could certainly be pushed around a bit. This rough estimate reads a bit high because no other costs are factored in--it assumes that all the money customers pay for HSD is pure gravy. If we assume that the cable companies set the price point at their standard 70% markup then the break-even point drops to 205.9GB/mo. 

But 500GB/mo. is a probably a good compromise figure. Costs will probably decrease, not all of the traffic has to go extra-network, etc.

Although few users are hitting 500GB/mo. now it is certainly plausible to envision an increasing percentage of users hitting that within the next 2 years. Within 10 years that could easily be the norm.

Both sides of the argument get knocked around by this. Charging $1/GB is absolutely usury. But arguing that the costs are negligible or that the exaflood is pure fantasy doesn't work either. There should be a comfortable middle ground and both sides covering their ears and stamping at each other won't find it.