Why Vendor Lock-In and Micropayments are Bad

Jul 31 2007 Published by under Rant

A lot of people have commented on the fact that if you get an Apple iPhone, you have no choice but to get your phone service through AT&T. For a lot of people, this is a deal-killer. Why would Apple do this? Doubtless they got some sweet deal, but it doesn't seem to be a sweet deal for their customers. But, the hype surrounding the iPhone means that Apple is probably not really suffering much in the way of people not buying the iPhone because of this restriction. If there were a real competitor out there, perhaps things would be different.

So, strike one.

What about micropayments? People— particularly those of the sort who don't understand that something can have value without necessarily having economic value— have long wondered how to monetize the web. "Micropayments" is a term that's come up a lot. Wouldn't it be great if people could be charged a couple of cents for each web page they viewed? Well, no. But the idea is that somehow people should be paying for all of this directly, despite the fact that the world's most successful web company seems to give away a whole host of really cool stuff without needing to charge people each time they use it.

There is often a lot of head-scratching around why people don't like micropayments. To me, it's a no-brainer. I much, much, much prefer having a "flat rate" plan than a "pay as you go" plan. This is especially true for something where I get billed after my usage. Fuel for my car is something I buy on a "pay as you go" plan, but I pay for it up front before I use the fuel, and I know how much I'm paying for it. Back when I was a kid, and subscribed to the Quantum Link online service, I almost never strayed away from the "basic" areas. There were "premium" areas, and we would get something like an hour a month free from the premium areas. If there was something I wanted in there, I would be in and out as fast as possible. Likewise with GEnie; I wrote scripts that would allow me to instantly download all of the message boards from a premium area, and then do my response posts all at once, so that my "time in area" would be very brief. When the clock is running, I'm afraid of the bill that will come. It makes it difficult for me to enjoy or comfortably use a service when I spent the whole time nervous about how much money all of this is eating up. If I must have a micropayment, at least I need some sort of meter to know how much I'm using or (as is the case with electricity and gas bills) some sense of stability about how much I'm going to pay each month.

Here is a story on BoingBoing about a guy who ended up with a $3,000 bill from AT&T because he used his iPhone on an international trip. With a different bit of hardware, he could have had a $70/month flat rate, so it's apparent that this bill is beyond ridiculously high. AT&T is not backing down, either; the best "bribe" they could offer him was just a bit more than a 10% reduction, which on $3,000 for most of us doesn't make it any more reasonable. If he doesn't pay up, all of his family's phones get disconnected on August 14.

Obviously, the very first thing he should do is move all of his family's phones— including his wife's business phone— to a different carrier. If this isn't a lesson that AT&T should be avoided whenever possible, I don't know what is.

But the fact is, if you want to use the iPhone as a phone, you are stuck; you have to go with AT&T. So they can pull crap like this, because there's no worry of a mass defection of people to other carriers when they find out that AT&T is screwing customers over.

Vendor lock-in is bad. Boo to Apple for doubling the vendor lock-in with the iPhone. (There's not much they could do about the Apple lock-in, but tying it to an AT&T lock-in was a bad choice.) Micropayments are usually bad, especially (as in this case) when you can't monitor how much you're being charged until the exorbitant bill comes. Give me a flat fee so I know what I'm going to be out!

9 responses so far

  • jba says:

    I agree completely. About the whole damn thing. I myself was using AT&T for a while and was one day late with a payment, once, and they shut off my service. Not only was it shut off, but whenever I picked up my phone it automaticly shunted me over to their accounting deptartment. When I wanted to cancel I had moved out of the aptarment that the line was attached to and I couldnt get a human being on the phone. Every number was a menu with no option for speaking to a person. I wound up having to call internet tech support (I didnt even have the net at the time)and yell at people until they transfered me. It was a nightmare. I myself would never use a device that made me use a specific provider, especialy AT&T, who I will never use or say a kind word about.

  • Amanda says:

    I don't have too much sympathy for the guy in the BoingBoing story. He was told a rate ($0.005 per kB). A quick save and get info on the New York Times homepage told me that it was ~700 kB. So one access of the New York Times homepage would cost $3.50. Some simple math would have saved him $3000.
    It is annoying and bad that you can't disable the EDGE network usage in foreign countries. I know people who've transferred their SIM cards out of their iPhones into an old phone to travel internationally.

  • Markk says:

    Micropayments have always felt wrong all the way back to the Xanadu stuff. I remember reading those proposals in the late 70's early 80's. They always felt wrong. What ever happened to Ted ??? the guy who proposed it in the 60's.
    Micro payments vs microcharges - I don't mind a flat charge that gets used up.

  • zhasper says:

    I agree with you, but I don't like your terminology.
    It's not the micropayment you're onbjecting to; it's the fact that payments are (A) largely invisible, and (B) collated and charged in arrears. The combination of the two is what leads to surprise bills.
    There are ways to fix B - eg, paypal is a system that lets you top up an account balance, and then let small charges come out of that account. Paypal isn't perfect - the login process to authorise each transaction would get tiresome fast, and I think the fees would be too high for real micropayments, but it's close.

  • As Clay Shirky famously explained, the trouble with micropayments is the "mental transaction costs" involved.
    This is true whether the payments are invisible (as in the AT&T bill) or visible.

  • Donalbain says:

    I must say that reading your post today made me all confused and brain hurty. Surely, with a mobile phone contract you pay

  • Jon H says:

    " but tying it to an AT&T lock-in was a bad choice."
    Perhaps, but that might have been the price of having more control over what goes on the phone itself. By comparison, my Verizon phone and UI are covered with Verizon logos, and the services are limited by and funneled through Verizon.
    IMHO, phone companies have bastardy in their genes, so an iPhone never had much attraction for me. At least not until free wifi is omnipresent and VOIP is all you need.

  • Rob Knop says:

    Perhaps, but that might have been the price of having more control over what goes on the phone itself. By comparison, my Verizon phone and UI are covered with Verizon logos, and the services are limited by and funneled through Verizon.
    I think you miss my point. It's not that AT&T is bad and somebody else would be good -- it's that Apple made a mistake by locking users in to any single vendor.

  • Peter Erwin says:

    I think you miss my point. It's not that AT&T is bad and somebody else would be good -- it's that Apple made a mistake by locking users in to any single vendor.
    You're assuming the Apple had complete freedom to choose vendors, and that they could have chosen mulitple networks. Unfortunately, since the networks control their own, um, networks, they have a lot of freedom to demand lock-in, which is why essentially all mobile phones sold in the US are locked to a particular network. This isn't necessarily any different than, say, the introduction of Motorola's V3 Razr, which was initially only available on Cingular in the US, and which was locked so that only Cingular SIM cards would work in it.
    Apple did make things harder by wanting certain preconditions, particularly unlimited data plans (within the US) and the necessary connections for the iPhone's voice-mail access. But this left them vulnerable to networks demanding special concessions in exchange. It's quite possible that Apple was faced with some networks who were simply not interested, and other networks that said, "Well, we'll work with you on this, but only if you agree to make us the exclusive network."