Smoothing the Path of the Broadband Wagon

For those of us who work in or alongside the technology industry, it can be easy to take for granted our understanding of the evolution, jargon, and scope of the products and services the industry sells to its markets. But it's crucial to catch ourselves when we do, because we run the risk of forgetting that mainstream consumers aren't so versed in technology's ins and outs. They care mainly about the benefits they'll receive from a product or service, and rightly so. Turning specifically to broadband, it looks like a good segment of American consumers are going to need more than "it's so much faster!" to convert from dial-up to broadband. Reducing prices will help, but there are dangers associated with dropping them too much. Better communicating what benefits "fast" delivers, and customizing different packages to different consumer profiles, is just as important.

A recent Ipsos-Insight survey among 1,000 Americans explored what it would take for dial-up Internet users to switch to broadband. The question is especially relevant to broadband providers in today's intensified competitive landscape: telecoms are betting that sales of high-speed Internet connections will help them boost falling revenues from traditional phone service, while cable companies recognize broadband as a major growth opportunity.

Almost two-thirds of U.S. households are online and most of them continue to access via dial-up connection. Broadband growth will likely be slow at prevailing prices. Four-in-ten dial-up users mentioned cost as a reason they have not already switched to a high-speed Internet connection. Another barrier to growth will be perceived need: one-third of the dial-up population is not convinced they need high-speed service at all.

What price will convince dial-up users to switch to broadband?

At the current average price point for cable modem users ($40.70 a month), about 3% of dial-up users whose homes can be connected to broadband service are likely to subscribe. There will be a jump in new broadband subscribers if prices drop from $40 to $30 (see chart). At the $30 price point, both DSL and cable modem companies could potentially triple new subscription rates to 10% and 9%, respectively. And, up to 20% of dial-up users would sign up for high-speed service if the price is reduced to $20. This is true for both DSL and cable service (see chart).

What does this mean for broadband companies and Internet service providers?

That even at a low price point of $20, 80% of dial-up users said they would not switch to broadband indicates that price is not the only, or even the most important, barrier to broadband's growth. And, as prices drop and become less of a barrier, they will have a less potent effect on consumers' decisions as to what connection to get.

The fact is, a huge segment of dial-up users is not convinced that they need to convert to high-speed, perhaps because "faster" isn't enough of a value proposition. They need to know what "faster" lets them do. Strong messaging, positioning, and creative "bundling" offers will be even more important than pricing strategies in building interest within this large segment.

What will convince dial-up users to switch?

In order for DSL, cable, satellite and other broadband providers to get a leg up on the next wave of broadband adoption they must differentiate their products and offer a unique selling proposition.

One way for broadband providers to develop differentiation strategies is with package offers that bundle broadband with other cable and phone services. Offers should be designed to deliver simplicity, convenience, and value to the customer. Voice-over IP might be added as an option in bundle offers. Higher speeds are another option, as some early adopters of broadband will eventually want more bandwidth than they currently have and will pay more for it.

A promising differentiation strategy for Internet service providers may be to offer for-pay content that is enhanced with a broadband connection. Similar to the cable TV model, attractive for-pay content and features offered with access may help drive adoption as well as hold pricing at higher levels in a competitive environment. Features such as spam filtering, instant messaging, and parental controls are popular components for package offers. In addition to content strategies, ISPs should consider partnering arrangements with satellite companies as a means to gain entry into broadband.

As prices hit the $30 to $35 range (which they already are beginning to do), cost becomes less of an issue, and benefits, or features, will be what consumers look at when they're deciding if, and with whom, to access via a broadband connection.

Most important: focus on the customer

Successful broadband providers will be those who focus their efforts on the customer at least as much as they focus on service attributes like faster speed or new features. They will look closely at the different ways consumers are using the Internet, and thus be able to customize their marketing, communications, and content bundles so that they generate the most impact. Individualized and flexible content packages with access will be important to broadband's growth in the U.S.

Another good step would be to more fully leverage customer relationship management, a natural tool for the Internet. Providers will win longer, more profitable customer relationships by offering individualized service packages that meet customers' needs today-but change as their needs change.