Just before Christmas, Yahoo Tech Columnist Rob Pegoraro took a look at the Karma Go personal 4G WiFi hotspot, and the new Neverstop program it offers. Pegoraro was curious how well such a program could work—offering “unlimited” bandwidth at a $50 per month rate while at the same time having to buy that bandwidth on a pay-per-unit basis from Sprint. What if customers use up too much data for Karma to earn a profit?
Under Neverstop, users are capped to 5 Mbps bandwidth and three device connections at once. Within those limits, they can use as much bandwidth as they want, including streaming high-definition video from services like Netflix, Hulu, and Amazon. Pegoraro was curious whether 5 Mbps would really be enough for that kind of use. After trying it for a while, he concluded that it was, by and large—but hiccups with Sprint broadband in his area sometimes kicked his video playback out of high-definition, occasionally even degrading it into blurry RealVideo-quality footage.
The more pressing question was whether Karma would be able to keep this service level up. Pegoraro notes that, since Karma launched Neverstop on November 5, 70% of sales have been under that program. Given that Sprint doesn’t sell “unlimited” bandwidth to its providers—they have to pay Sprint for each unit of bandwidth their customers use—he wondered whether Karma would be able to continue running such a program, or whether it would start losing money as customers used up more bandwidth than they paid for. He quotes an analyst who doubts Karma can keep up this pricing for a long time, and did not hear back from Karma when he asked them for analysts with the opposing viewpoint.
But I don’t think Karma’s prospects are that bad. I have a sneaking suspicion that this pricing shares a lot in common with pricing for all-you-can-eat buffets. For every buffet, you’re going to have people who gobble up huge amounts of food, you’re going to have some who eat hardly anything, and you’re going to have a lot of customers in the middle somewhere. The trick is setting the price point to where there are enough people who eat less than they pay for to subsidize the fewer people who eat more than they pay for.
That’s the way Karma has to approach the question of bandwidth. And I suspect they’re probably going to do okay. You see, I use my Karma a lot. Even stream video on it from time to time. I don’t make huge downloads over it, or any of that kind of thing, but then, I have home broadband for that. Maybe I’m not a heavy user, but I don’t skimp on it either.
And when I checked my usage stats via Karma’s dashboard, after several months on the Refuel program, I found that I wasn’t using enough bandwidth to make switching to Neverstop viable. Since I only buy Refuel bandwidth when they put it on buy-one-get-one sale, I was only using a little over $25 worth of bandwidth a month. Even if I bought it at the normal rates, I’d still be spending about the same on Neverstop as on Refuel. So, on the whole it’s doubtful I would save much from going to Refuel. I’d just lose the flexibility of being able to save money by decreasing my monthly use.
How many people signed up for Refuel without having any idea how much bandwidth they’d use? What if it wasn’t anywhere near what they thought, and they’d actually save money on a Refuel plan if only they knew about it? And what if those people made up the majority of those Neverstop customers? How many people sign up for Neverstop and then never even bother to check their bandwidth usage after that, so they have no idea they could be saving money? Anyone in that boat would actually be paying Karma more by being on the “unlimited bandwidth” program, so Karma would make more money from them that way, not less.
I don’t have any inside information on Karma, so I don’t know how many people are getting their money’s worth from Neverstop and how many would actually be saving money if they switched over to the Refuel plan (especially if they waited to buy data until it went on sale). But if there are very many of them, that could change the economics considerably.
And my guess is that there are very many of them. People tend to assume that all-you-can-use plans offer the best value, and $50 a month for “unlimited” bandwidth sounds like a great deal—especially if they have no idea how much they actually would use. It’s one of those little psychological traps we tend to fall into. (Who hasn’t had the experience of paying to eat at a buffet and then discovering you’re nearly full after just the first plate or two?) I think the odds are pretty good that many of those 70% fall into that category.
I do suspect the reason Karma waited until several months after launching its router to premiere its unlimited-bandwidth program was so it would have plenty of time to gather information about how much bandwidth most people tended to use. Remember, Karma is tracking the amount of usage for everyone who owns one of those routers. Armed with that information, its analysts could very easily craft a plan that would offer people as much bandwidth as they wanted to use, secure in the knowledge that the vast majority of people would never use that much—and every user who doesn’t use that much helps subsidize the cost of the people who do. And if Karma should find it’s miscalculated, it can always change the pricing on the plan going forward.
I can say that regardless of Pegoraro’s skepticism, Karma seems to be very popular. So far, 182 people have bought routers using my referral link, which saves them $10 on the router and earns me $10 at the same time. That will keep my mobile Internet subsidized for some time to come. It’ll even let me save on the Project Fi service I’m ordering for my new Nexus 6 phone, since Project Fi only charges you for the mobile bandwidth you use, and I’ll mostly be using my Karma’s bandwidth instead. (Interestingly, the $10 per GB price Project Fi charges is about the same as the lowest cost per gigabyte for regular-priced Karma Refuel packages. Of course, since I only buy on sale, I get them for about half that.)
The router currently costs $99 with a subscription to Neverstop, or $149 if you start on Refuel. Since you can switch between programs at any time, it might be just as well to try a month of Neverstop, see how much data you use over the course of it, and switch to Refuel afterward if you don’t use that much. You’ll effectively be paying the same amount for the router either way, so you might as well do it the way that gets you a month of unlimited bandwidth.
And Pegoraro is right that, since every time a new user connects to your Karma, you get 100 megabytes of bandwidth, people who don’t use much data at all could probably get by without refilling often. It’s also nice to remember that most e-books—the reason I originally started looking at portable hotspots in the first place—use very little bandwidth to download. So if all you use the Karma for is keeping your Kindle loaded, that could last you a very long time.