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use of information had not been part of the business case for migrating from cardboard tickets to Oyster cards [2003]

That statement is preposterous. What was the "business case" for building a new payment system, if not optimizing price structure of existing, zone-rated transit? Kewl factor? I think not.

Our examples so far have involved switching costs, like those to Bell Atlantic of replacing switches worth billions of dollars. Do not be misled: even when switching costs appear low, they can be critical for strategy. A million customers, each of whom has switching costs of $100, are just as valuable, collectively, as a single customer whose switching costs are $100 million. The point is that you must compare any switching costs to revenues on a per customer basis and add up these costs across your entire installed base to value that base. These principles apply equally to customers who are businesses or households. [Shapiro and Varian, 1999: 108]


Diversity is the key to economic and political evolution.
by Cat on Wed Mar 17th, 2010 at 09:33:40 AM EST
[ Parent ]
Quite. Although many carriers burnt their fingers with 'push' services a few years back, leading to a greater focus on 'pull', the marketing people are still salivating at the thought of individual profiling so they can sell an individual more stuff.

OTOH many of the technical capabilities that get built into any technical network system in order to make it more profitable, tend to be 'misused' by subscribers. Many, especially young people, 'game' systems to reduce their own costs. And when there are enough smart 'gamers' (i.e. millions), they do a better job of 'balancing' the system than a hundred engineers sitting around thinking what customers might want to do. Often these new capabilities do end up being profitable for the carriers, but not in the way they planned.

You can't be me, I'm taken

by Sven Triloqvist on Wed Mar 17th, 2010 at 10:28:42 AM EST
[ Parent ]
re: carriers

My choice of excerpt was semi-incidental. The internet revolution fantasy slathered on revenue maxing strat in that book is unavoidable. Still Oyster is a volume tool.

A characteristic common to telecom and mass transit enterprises is, both are general utilities.

Another is rate structure being a function of distance between origination and termination of service per purchase per person. That is, both producers meter length of service by zone transited, regardless of mode or payment method.

The problem then facing bureaucrats masquerading as civil engineers of unified transit operations is usually, fundamentally, revenue collection. The value of information lies not in "individual profiling" or idiosyncratic preferences. For none would argue, mass transit riders could, did, and do easily "game" a rudimentary system of "information" required to calculate price of passage.

Particularly bus fare.

I've seen it with my own two. Ridiculous situation. Not even in NYC, still a coin and paper subsidized operation, bleeds like that. omg. Marginal rate of recovery of losses attributable to that division of the London metro system alone had to make the case for installing Oyster readers.

Passenger car congestion notwithstanding,

It takes £1.8 billion (US $3 billion) to keep London buses running, but riders only pay £1.1 billion (US $1.8 billion) in fares [probably an improvement YoY since 2003], creating a 40 percent subsidy at the expense of motorists. The London Underground subway system is more efficient with £1.8 billion (US $3 billion) in fares collected to cover £2.4 billion (US $3.9 billion) in expenses, meaning riders only enjoy a 25 percent discount at the expense of drivers. Read more...


Diversity is the key to economic and political evolution.
by Cat on Wed Mar 17th, 2010 at 12:50:09 PM EST
[ Parent ]

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