Infrastructure // PC & Servers
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3/31/2008
01:48 PM
David Berlind
David Berlind
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Did Verizon FiOS' Free HDTV Inch Us One Step Closer To Jonathan Schwartz's Free Cars?

OK. So things went very badly after, in an effort to drum up more business for its fiber-optic based FiOS service, Verizon offered up free HDTVs. After Verizon had a hard time making good on the promise, the bad news spread like wildfire across news sites and blogs. But did the critics miss a bigger "free car" picture that Sun CEO Jonathan Schwartz once alluded to?

OK. So things went very badly after, in an effort to drum up more business for its fiber-optic based FiOS service, Verizon offered up free HDTVs. After Verizon had a hard time making good on the promise, the bad news spread like wildfire across news sites and blogs. But did the critics miss a bigger "free car" picture that Sun CEO Jonathan Schwartz once alluded to?Back in April 2005 during the Open Source Business Conference, Sun's Jonathan Schwartz talked about how the gap between services (eg: subscription-base support) for free software and services for free cars is probably closer than we think. In other words, to the extent that open source software is being used as a razor for which services-based blades are sold, why not have free cars as the razors with other services (eg: General Motor's OnStar service) serving as the blades?

During his speech at the OSBC, Schwartz talked about how he asked a GM competitor how much it would have to charge for services in order to justify giving away a car for free. Apparently, the competitor had already done the math (which means the car industry is thinking about the same model). The answer? $220 per month. Of course, we don't know what the assumptions were. For example, $220 per month might be enough to recoupe the cost of a no-frills compact car. But what about something a bit more luxurious?

The practice of giving away hardware (eg: a car) in order to capture the services revenue is nothing new. Look at the phone industry. Especially during this digital day and age, there are a gazillion and one services that can be attached to a cell phone. So,it should come as no surprise that so many phones on the market are available for free. In fact, in some cases, you can even get paid in cash to take a phone! How about that!

So, while everyone else was watching the FiOS HDTV debacle for the debacle that it was, I was watching it thinking "Here comes the free car that Jonathan Schwartz was talking about at OSBC." Software is being given away. Handsets are being given away. Now, the communications companies are giving HDTV flat panels away. And what for? Because the the likelihood of customers subscribing to (and staying with) premium-level services like Verizon's FiOS improves significantly. Verizon is banking on the chance that once customers have an HDTV connected to the FiOS network, they'll get so hooked on the service that they'll continue to renew it each year.

For years, the communications industry has referred to a metric known as ARPU or Average Revenue Per Unit. Now, with services being spread across households, families, or businesses, the metric will likely change to something like ARPO (average revenue per organization ... even if the organization is only one person). The point is that once you have an HDTV on your premises and you're subscribed to a service like FiOS, it's no longer just a revenue per unit metric. In many cases, communications companies have no idea how many "units" exist at the customer premises.

Perhaps more interesting, though, is how to look at this from the point of view of the GM competitor that Schwartz spoke to. In the Verizon world, Sharp made the HDTV that it was hoping to give away and Motorola makes the HDTV set-top boxes (these also were heavily back-ordered). In the case of the handset and HDTV business models, it's not the hardware manufacturer that's giving away the hardware. But rather, it's the services retailer.

So, who might be giving away cars at some point in the future? Is it the car manufacturer? Or, could it be some services provider like Verizon Wireless, T-Mobile, AT&T, or Sprint (since so many services that might be attached to a vehicle --- everything from safety to content to location-bases services --- are communications-based)?

Finally, why can't I get FiOS? The people who live in the boonies around me have it. But I live in a small city and don't. Go figure.

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