WhatsApp, the popular texting app that has taken a huge chunk out of operators’ lucrative texting plans around the world, has been working to get closer to carriers. But this deal is worth paying attention to because if it succeeds in giving customers what they want while also helping carriers mitigate the margin-shaving effect of over the top services, it may be the future of mobile data plans.

Instead of buying a bucket of bytes, what if users ended up buying a bucket of bytes and access to a few favorite apps? Then the mobile pricing looks more like an a la carte cable offering and less like forcing people to pay an arbitrary fee for a device ($40 for a smartphone!) in addition to the bucket of bytes as new plans from AT&T and Verizon do.

The pros and cons of the WhatsApp offering

While there are plenty of people who want to buy an amount of data from their mobile operators and use it exactly how they please, for many carriers such a pricing plan would be financial suicide — cutting their profits to the bone. It’s possible that in competitive markets carriers will arise who can do this: Take the lower margins and still support their business. That would be awesome, but for now those options are few and far between.

This is why carriers have killed off unlimited plans and are experimenting with family plans. It’s also why operators such as AT&T are thinking about how they work with popular app makers, with Ma Bell considering some kind of plan to charge app developers for the data their users consume. Consumers want their apps, carriers want to make money and appmakers want consumers to be able to use their apps without fear of ringing up a crazy bill.

The WhatsApp pass solves a lot of these issues in a way that offers carriers a way to monetize an over the top application that’s threatening their revenue stream, gives consumers more security as well as the international roaming, but also steers clear of network neutrality issues because consumers don’t have to sign up for this plan to use WhatsApp. While 3 Hong Kong declined to discuss whether or not WhatsApp has to do to get this deal, if the terms were fair to WhatsApp, then even app makers should like this.

For most normal customers who might use WhatsApp, but don’t want to worry about their data allocations, paying $8 a month for security and access to the app while they travel is a good way to offer value, above and beyond just bytes. And honestly, that’s what many carriers don’t seem ready to understand.

So what apps would you pay for?

Carriers have established ties to popular apps for years, with varying levels of success. One of the earliest examples was the creation of the Skype phone for INQ which helped boost revenue for the operator as new subscribers picked up the handset and used a lot of data. Verizon also did a deal with Skype to bring the service to handsets and let them use the actual circuit switched network to make calls. Telefonica is building its own over-the-top services to compete. Several operators around the world have Facebook-related plans.

So then for consumers the question becomes what apps would you actually subscribe to? And for carriers the question is how many apps do they want to work with? For example, consumers might love a YouTube app, but because video consumes so much bandwidth, offering a reasonable rate to consumers that won’t blow an operator’s network might be a challenge. But, if Google and the carriers managed to work together to make the app less piggy on the bandwidth side, maybe something would work. Perhaps we’ll hear more about that next week at our Mobilize conference when Shiva Rajaraman, director of product management at YouTube, shares how to build a mobile video app.

I for one would pay for a Google Maps everywhere plan simply for the security of not going over my data limits while traveling internationally or risk emptying my data bucket as I wander lost around my hometown of Austin (yes, I am that directionally challenged). I might also pay for an hour of guaranteed low-latency Skype or Tango video calling over the cellular network provided it wasn’t more than $5 a month. At that point, my mobile plan starts looking more like an a la carte cable plan and less like a bucket of bytes. If done well such plans could be good for operators, consumers and even app makers.

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Book publishers are trying hard to defend the pricing of e-books — perhaps in part because they’ve been accused by the Justice Department of rigging prices to keep them artificially high — by arguing that it costs a lot more than most people think to produce the electronic version of a book. But as author Chuck Wendig notes, what e-books cost to manufacture or distribute is irrelevant to everyone but the publishers themselves. All that matters is what book consumers are willing to pay for an e-book — and the same principle applies for any form of digital content.

Hearing the complaints of book buyers must be frustrating for publishers, because they actually have a pretty good case for why e-books cost what they do. Although many see the price of old-fashioned things like paper and printing presses and trucks to ship them as a big cost for printed books, publishers like Penguin point out that the main costs involve advance payments to authors, marketing and other support expenses — things that also apply to e-books. As Wendig puts it:

[P]roducing e-books costs more than you think. You’re paying for editors and cover design and, of course, for the book itself, and the mechanics of putting those things into a container are not the bulk of a book’s cost. Hence, e-books are always going to be close to their physical counterparts in cost.

But as the author also notes, consumers don’t really care what a publisher’s costs are, nor are they likely to pay more simply because a publisher argues that their content is really valuable. In the same way, movie-goers don’t really care how many millions of dollars a movie studio spent on their latest blockbuster — that has no bearing on whether they want to see it or not. It is the perceived value of the e-book that matters, not the cost — and there are some good reasons why e-book consumers might want to pay less.

Financial Times columnist John Gapper pointed out in a comment on Twitter that consumers often use justifications about how expensive content is to defend their right to download it without paying. And many e-book consumers probably do under-estimate what it costs to manufacture or distribute an e-book. At the same time, however, it doesn’t take an economist to figure out that publishers are determined not to let cheaper e-book prices (driven largely by Amazon) cannibalize their print business, which is why they cut the “agency pricing” deal with Apple that landed them in antitrust-lawsuit territory.

All that matters for readers is perceived value

Wendig also makes a good point about what you get when you “buy” an e-book versus a printed book. In many ways, what you are doing is renting the content rather than actually acquiring it, since you can’t sell it when you are finished with it, and most of the time you are prevented from even lending it to someone else to read — and in extreme cases, providers like Amazon can actually delete the book from your device remotely without your permission. So e-books may be convenient in ways that printed books aren’t, but they are also less functional.

An e-book is a digital good. Ephemeral and intangible. Sometimes we don’t even have access to the e-book itself in the form of a file — in the case of Amazon, we’re just “renting” the e-book the same way you rent Taco Bell food. You bought it. It’s inside your device. But if Amazon decides you don’t need it anymore, one snap of the wizard’s fingers and the e-books are poof, gone.

Even apart from that argument, however, there’s no realistic connection between what a content producer’s costs are and what people will pay. As journalism professor Jeff Jarvis noted some time ago, in reference to newspaper paywalls and subscription plans: “No one cares what you spent. Arguing that news costs a lot is irrelevant to the market.” And as David Pakman of NYC-based VC firm Venrock has pointed out, when it comes to digital goods, the marginal cost of producing another copy is effectively zero.

In the end, all that matters is what readers want to pay — and that isn’t always going to jibe with existing business models. During a panel discussion I was on recently, the editor-in-chief of a newspaper said he asked a businessman and loyal supporter of the paper what he would be willing to pay for a subscription plan, and the number was 50-percent lower than what the paper had planned to charge. Is that fair, given how much that content costs to produce? Perhaps not. But in the end, it doesn’t matter.

As I’ve argued before — including during a recent debate with my PaidContent colleague Laura Hazard Owen about the wisdom of agency pricing — I think publishers are shooting themselves in the foot by sticking rigidly to models that were appropriate for a different world, when “windowed” releases and regional restrictions made sense. There’s at least some evidence to show that if prices drop low enough, sales can climb by orders of magnitude. Why not allow e-book prices to float and then see where they end up?

Post and thumbnail images courtesy of Flickr users Aitor Calero and Marcus Hansson

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BlackLocus uses it to create a dynamic pricing environment to help retailers stay nimble and respond to the current market. The Austin, Texas-based company raised $2.5 million in initial funding last summer, and aims to help online retailers of any size keep up with their competition through a mix of data mining and analysis. The end result will bring the same pricing transparency that tools like Google Product Search or Shopzilla have given consumers to online retailers.

Rodrigo Carvahlo, the CEO and founder of BlackLocus, explains that online retailers hire the company to help them track what competitors are charging for the same products. This sort of price comparison is hard to do at a massive scale, but BlackLocus’ success getting over the technical challenge, could pave the way for a future when retail prices could be set in real-time based on the retailer’s existing inventory, what other companies are charging and the overall demand threshold for the consumer.

For example, ahead of Christmas, I saw the FurReal Go Go My Walkin’ Pup on sale for prices that ranged between $45 and $65 online over a period of two weeks when I began eyeballing the toy as a gift for my daughter. I eventually picked it up for $45, after seeing it priced lower at Target.com than the current prices at Amazon or Toys R Us. Had I been more diligent I could have use a price tracking service like PriceProtectr, Google Product Search or just scanned a UPC code into Shopzilla or ShopSavvy while out and about to find the lowest price for that moment.

That kind of consumer transparency is what BlackLocus wants to bring for retailers when they are trying to set their prices. For a small online retailer being about to offer a similar or lower price than Amazon or Target could help keep them competitive. Similarly, if they saw that Amazon or Target were sold out, they might be able to raise their prices. But the problem of getting the data, matching it to the right products that might carry different names or SKUs online and then comparing the pricing all takes work.

The hardest part is matching the products across different sites said Carvahlo. To get the data, BlackLocus crawls online retail sites a few times a week, or as often as the prices tend to change (thanks to its knowledge about pricing, folks who work there know the absolute best time of year to buy televisions, or how many months a phone has to be one the market before the price drops). Once it has the pricing data it runs several algorithms against the data to match products across different sites and puts them in a database. It’s a significant amount of data and it’s growing rapidly. Robert Taylor the COO of the company emailed me to say:

We really look at [the data] two ways. First, the number of product URL’s (think product page) that we track and second, the price data cluster capacity. We are well on our way to tracking 150M product URLs, projected to be nearly 300M by the end of 2012. Similarly, our cluster capacity is nearing 9 TB over the next few months, significantly increasing to 125 TB by the end of 2012 as we store historical information. These types of increasing requirements really require us to constantly iterate on designing/deploying scalable infrastructure.

Like many startups, BlackLocus uses Amazon Web Services for some of its infrastructure and it’s planning on implementing a more enterprise data analytics product such as SAS to help it manage and analyze the prices. BlackLocus doesn’t disclose its customers, except to say that it has customers that range from those in the top 75 internet retailers to small mom and pop shops. So it’s not only mobile that’s changing the face of retailing, but data as well.

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I met Patry in a Barnes & Noble (NYSE: BKS) which seemed like a fitting place to discuss the state of the content industry. The bookstore giant is a leader in providing both content and community but faces the same existential threats that felled similar icons like Borders and Tower Records.

Patry, who was copyright lawyer to the US House of Representative and authors a seminal textbook series, is also an obsessive book and music consumer. He boasts of blowing thousands of dollars a year on sheet music and recordings, and letting his 10-year old daughter buy whatever she likes in Diane’s Books in Greenwich, Connecticut. He is rooting for the content industry.

“I want them to be wildly profitable because I love their stuff.”

As for the laws that protect that content, Patry is dismayed by the state of dysfunction that pits publishers, creators and consumers against one another. He has ideas for legal reform but is also realistic. He believes copyright has long been about ideology not evidence, a phenomenon he attributes to people’s passion for the creative arts. Patry also says there are inherent political problems that prevent dislodging lobbyists and reforming copyright.

“In the grander scheme of American politics, copyright is small potatoes. We’re not going to elect a President based on his view of copyright issues.”

Patry also questions whether another giant of copyright law, Laurence Lessig, made the right decision in launching a “rootstriker” campaign to fix Congress rather than simply running for office himself.

High discussions of copyright are all well and good but, for many creators and publishers, the more pressing issue is how to find a business model that will let them survive in the digital era. Patry’s new book, How To Fix Copyright, offers a mix of theory and practical ideas. We will have a proper review of the book this weekend but, for now, here are three concrete pieces of advice from Patry:

Focus On Access Not Copies

Control over the reproduction of books, music and movies was forever the cornerstone of the content industry’s business model. Today, though, the significance of copies is becoming meaningless in an era where an infinite number of digital reproductions can be made at nearly no cost. In practical terms, this means that content owners should focus on expanding access through technology like streaming rather than controlling copies.

This may not reassure content owners who confront others who share their products without permission. Patry thinks the response here once again turns on access:

“The answer to the contraband stuff is flooding the market with authorized versions.”

Pricing Matters As Much As Piracy

Patry is aware that global piracy is a concern for the content industry but believes that the issue is “more a pricing problem than a moral problem.” He thinks that the industry is leaving money on the table by holding out for Western level pricing rather than making digital media available at prices that consumers in developing nations can afford.

This means increasing the customer base and making money from a larger number of small transactions. Doing so, Patry says, also requires recognizing that copyright is a means to an end — putting money in artists’ pockets — rather than an end in itself.

Focus On The Product Not The Law

Media products, like those in other industries, have a finite life cycle and it’s ultimately futile trying to extend that cycle after consumers have embraced a new era of products. Publishing industries, though, are fixated on passing stricter laws in an effort to wring more revenue out of dated products. This is a mistake.

“You can’t control through laws a product cycle that is over. Laws aren’t going to help you force people to buy things they don’t want to buy in the first place.”

Patry suggests it’s better to focus on providing consumers with new products in “formats, places and times” they will embrace.

He also suggests that publishers concentrate on value-added features. They can do so for digital products but also for legacy products like hardcover books and music compilations. Patry explains he recently refused to buy a $30 DVD of Kung Fu Panda 2 because there is no added value to justify the cost. But he will happily shell out much more than that for the beauty and tactile joy of an elegant edition.

It will be interesting to see if publishers think Patry’s prescription is a viable one — lots of access to affordable digital products coupled with retailers that sell pricey but beautiful legacy versions.

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Today only 13.5 percent of operators offer a “true” unlimited plan, while 25 percent offer an unlimited plan in name only (but with caveats such as throttling or even an undisclosed cap), according to data gathered by Allot Communications, a network optimization vendor. Allot surveyed 100 operators to discover how they price mobile broadband and discovered about 80 percent had already moved to some form of volume-based pricing (think buckets of bytes) while 35 percent were trying to charge based on the applications used. The percentages don’t add up because some operators offer both types of plans.

The end game for operators is to figure out how to get people to use less data or pay more for the privilege, while also steering users to content that makes users happy without straining the network. So maybe they offer unlimited Facebook and charge more for Netflix. After all, the last thing they want to do is to scare people from signing up for data plans for fear of expensive overage fees.

What’s so interesting about Allot’s data is how far apart different regions are when it comes to newer types of pricing, and how much trust an operator has to build with consumers to make this sort of pricing work. Jonathon Gordon, the director of marketing with Allot, said that operators willing to give up on the “telco mindset,” were faster to adopt the level of transparency required to guide customers to these pricing changes without a lot of backlash.

For example, if an operator offers a customer an all-inclusive Facebook plan, what does that mean for users who might click on a video in someone’s news feed, only to end up watching a video on YouTube? Does that data cost more? If it does, how does the operator convey that to the customer? In the U.S. such ambiguities are a continuing source of distrust because carriers still see them as a chance to put one over on the customer — just look at Verizon’s sneaky placement of a web access button on feature phones that led to customers inadvertently racking up data charges and to the FCC launching an investigation. Verizon later paid out a $25 million fine.

The point here is that as operators try to change the way they charge, because the current models aren’t economically sustainable for them, consumers have to believe the deal is reasonable. That’s why I’ve been a proponent of measures such as data happy hours or other plans that incent users to use the network during non-peak times. Doing so helps manage congestion, and can still generate revenue for carriers.

Some of the more interesting findings from Allot are around the regional differences in the adoption of application specific plans and the types of applications operators are trying to build new pricing around. Regionally, Asia, Europe and Latin America are the leaders at figuring out how to charge for value as opposed to volume.

Gordon attributes this to their more competitive mobile data markets, a lack of fixed line infrastructure in the case of Latin America and more permissive regulatory environments. For example, in the U.S. uncertainty over how network neutrality will affect mobile broadband charging efforts is one reason that operators in the U.S. are sticking with the conventional gigabyte/volume plans.

However, Gordon is optimistic that in a quest for higher average revenue per user and a need to manage congestion on their networks, U.S. operators will shift their pricing and in doing so will start to think less like a telco and more like a company that will have to keep customers happy. As he says, “They’re very slowing being dragged into a subscriber way of thinking and they’re evolving.” I’m not sure I share his optimism on that, but I am pretty sure I’ll be paying more for mobile broadband in the near future.

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Mobile PCs are for work while smartphones are used for play … and everything else.

Mobile PCs are used for a few longer sessions, mainly during the daytime, but between late night and dawn, most are turned off. Yet tablets and smartphones usually have frequent, short sessions typically across the whole day. This means that smartphones may be a diversionary device during working hours outside of corporate logging software, as well as a way to check email when outside the office. These multiple functions and their smaller size make them less objectionable as companions during parties, in meetings and at church. It’s possible the days of getting evil looks for whipping out a smartphone at the table are waning.Yet …

Smartphones are for anytime, although maybe not dinnertime.

Despite my family’s use of the iPad or smartphone at the dinner table to settle arguments or show how plate tectonics work, a mere 32 percent of people around the world use their handsets for non-voice calls during dinner. But pretty much any other time of day is fair game, even those early morning hours while we hit the snooze button. How long till we just give up and stay under the covers with our iPads, or we see the equivalent of individuals hanging out alone eating dinner with their smartphones? You know, like what we do at lunch.

If you buy a big data plan, you’re likely to leave bytes on the table.

When selecting a mobile data plan it may be better to stick to the 4-5 GB per month range, given Ericsson’s data showing that for 1 Gb plans 32 percent of users go over their cap while subscribers left an average of 13 percent of their bytes on the table. At the high end just above 60 percent of the data goes unused while about 10 percent of subscribers manage to overrun their 10-20 GB per month caps. Given how much mobile broadband costs, we can expect both operators and consumers to look for better ways to charge that doesn’t have consumers grumpy about hitting overages or paying for far more than they use, while operators will be looking to influence what people consume and when.

There’s only so much web browsing you can do on a mobile device.

The monthly traffic resulting from applications such as online media and file sharing increases in line with volume data plan caps but web browsing reaches a saturation point at the 5-10GB data plan cap. Beyond that point it’s all growth P2P and online video streaming. Given that file sharing isn’t something operators are crazy about and streaming is stressful on the network, operators will likely try to influence folks to take those applications onto Wi-Fi networks or charge more for them. A lot more.

Mobile video users are going to pay, and pay dearly.

Those who use the most data on their mobile phones overwhelmingly choose to use video, according to Ericsson’s analysis of data use on a high-end, large-screen Android handset. the chart groups different subscriber clusters by their average weekly traffic volumes and shows each cluster’s average application use. So social networking and app store traffic increase almost linearly from low to high-traffic users, but those at the high end of usage appear to spend a disproportionate amount of time watching online video. Ericsson recommends targeting those subscribers to reduce congestion.

The cellular network won’t be the only network.

I made this point in my earlier post, but with people in urban areas using most of the data, it’s clear that cellular operators will have to look at Wi-Fi and small cells to help manage their spectrum in high density areas. The more people in an area the more people that are likely trying to access data from local base stations, which can cause slow speeds for everyone.

Fixed broadband subs looks relatively fixed, while mobile subs skyrocket.

For each fixed broadband subscription one assumes a few people will use it, while in mobile each user may have one or more mobile broadband subs. But as broadband usage grows, it’s not growing heavily in fixed line access, and Ericsson imagines that higher speed mobile networks will used be like fixed-line broadband is in developed nations. The gear maker estimates that more than one person will use mobile subs attached to PCs and laptops especially in third-world countries.

The missing chart on costs and profitability.

Ericsson provided a wealth of data in this report, but it didn’t outline exactly how operators would manage to support this growth in traffic while staying profitable. Clearly operators can adapt their pricing to influence people’s behaviors as well as add capacity to their networks in the firm of Wi-Fi and smaller cells. But these things will cost money, and it’s still unclear how fast operators will make up the loss of voice revenue with money from machine to machine and data services. Those cost curves would be a chart I’d love to see.

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According to OPTA, the total number of SMS sent in the Netherlands stood at 5.7 billion for the first six months of the year, down 2.5 percent from 5.9 billion in 2H 2010, even though total SMS revenue rose slightly (0.6 percent) to EUR378 million during the period.

This means that, for the first time, non-SMS data is now a more important segment for local operators than traditional messaging — in terms of both revenue and volume. Total data revenue grew 16 percent over the period to EUR405 million ($555.13 million USD), surpassing SMS revenue. In terms of volume (using a base measure of 1MB of data versus one SMS), data is now also larger than SMS, growing 24 percent to 5.9 billion (megabytes) in 1H 2011.

The loss of 200 million text messages by OPTA shouldn’t come as a surprise to carriers, as the proliferation of smartphones makes it far easier for customers to bypass text messages in favor of in-app communications with friends. It doesn’t help that the folks who are most likely to embrace texting are also those that are most likely to have a smartphone. According to Nielsen’s third quarter data, 62 percent of the 25-34 year old U.S. population have a smartphone and 50 percent of users in groups younger than that also have one.

The trend may be shaping up in Europe and Japan, but even in the U.S. the threat of losing the high margin texting revenue has prompted some changes. This year, AT&T changed its messaging plans to push new subscribers into an all-or-nothing price plan where they pay per text or pay up for unlimited. The bet is most people who weren’t on unlimited plans will find themselves paying more or getting stuck with insanely high bills for sending a few too many texts.

That’s how AT&T is squeezing out the last bit of value from its cash cow, but it’s undoubtedly aware that such draconian measures or too-high-rates on the unlimited side might push people over to the third-party apps even faster. The downside to most of those apps is that users have to make sure their friends are also on the service, which can be complicated. For carriers, the downside is they are trading high-margin texting revenue for barely profitable data use.

So expect more texting and data plan changes, and a continued focus on machine-to-machine communications, as well as more apps that try to make third-party messaging across different platforms easier. The irony is that carriers could implement a text messaging service easily in their new LTE networks, for a fee. The question is if that fee will be low enough (or the service valuable enough) to keep users from defecting to third-party “free” options that they get through their data plans.

Finally, as the future of SMS changes, it’s worth considering who might stick with paying for it a decade from now. Martin Sauter over at WirelessMoves says there may still be a market in his excellent post on the topic.

Perhaps SMS will become or remain an alternative for people who like privacy and services that don’t store and analyze messages for targeted advertising, building social graphs, etc. After all, unlike for web-based services for which users don’t pay anything and are in fact NOT the customer but only a source of information that can be monetized and on top give up some of their privacy, for the SMS service they might still be that: The customer, who pays for the service of sending and receiving messages, free from other needs of monetization such as selling information gained to third parties.

Ironically, as the world moves closer to free, carriers may find themselves marketing to an ever shrinking group of privacy-conscious people. Maybe that will make them think twice about becoming accomplices in government wiretapping?

Image courtesy of Flickr user bixentro.

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Let’s get personal.

Openet and Allot Communications have teamed up to offer mobile operators the ability to deliver personalized pricing plans for users. The partnership is new, but the idea of personalized pricing is not. In Europe, Orange is already creating personalized family plans as well as offering a wider variety of plans based on everything form the apps people use to the time of day when they use them.

Depending on how the pricing plans are structured they can lead to more revenue for carriers, help them manage congestion or both. To boost revenue carriers can offer applications such as Facebook or Skype to users that might be worried about paying $25 a month for data, but would happily shell out $5 a month for unlimited Facebook. Congestion could be alleviated by offering special pricing for late-night data use, or charging more for access to bandwidth intensive apps during peak hours. As a deep packet inspection equipment vendor, Allot is hopeful that operators want to segment out their traffic using Allot’s gear. Already some are, so we’ll see if more follow now that this partnership makes it easier to link the DPI to pricing.

Friend your mobile broadband provider.

For operators who don’t want to offer personalized plans (and even those who do) another option to get more personal with users is social networking. For those carriers, Nokia Siemens Networks detailed a Facebook app for operators it has developed that will allow your carrier to communicate with you through the social network. The app allows customers to set up an account, see their balance, track call duration and manage other elements. And when it’s all over the user can share the experience with their friends.

Given how unhappy some customers tend to find their mobile provider, sharing customer interactions so freely is a pretty ballsy move. It also can offer a user benefits, in the form of offering service credits for positive word of mouth. From the NSN release:

For operators that deliver a superior customer service, Nokia Siemens Networks’ Facebook app can amplify and publicize genuine leadership. People who share their experiences with friends, and also recommend services, can benefit from special rates and incentives from operators.

So get ready for your mobile providers to start talking to you more in the unlikeliest of places — through your friends, on your wall and even via texts or portals that offer you new services as you hit monthly data limits on your phone. I hope you love your carrier, because you’ll be seeing a lot more of it.

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Empire Avenue serves a unique and somewhat controversial purpose: It\’s a stock market that puts a price on people instead of companies. Members of the site use virtual currency to buy and sell shares in other people and websites, and the worth of each “stock” is determined in part by the user’s engagement on social networks such as Facebook, Twitter, and LinkedIn. Most recently, Empire Avenue has incorporated scoring for activity on Foursquare and Instagram.

Empire Avenue strikes some people as distasteful for ascribing monetary values to individuals. As people, aren\’t we all supposed to be priceless? In an interview earlier this year, Empire Avenue\’s CEO Duleepa Wijayawardhana told me what the site does is actually meant to be empowering. He said,

\”I like to say we’re freeing people from digital slavery. A slave is someone who doesn’t know their value. If you are participating in social networking sites, those companies are making money off of you. You just don’t realize what those values actually are.”

The Edmonton, Alberta-based startup plans to use the money to grow its team and expand its platform. Empire Avenue claims it\’s already \”generating strong revenue\” derived from selling virtual goods and currency and its brand-placement deals with products such as Xbox.

Going forward, the site could add features that allow its users to make real money by leveraging their Empire Avenue scores, perhaps by adding advertisements to their pages, Wijayawardhana told me in our earlier interview. But for now, the company itself is the only one bringing in real cash from the Empire Avenue social set-up.

Empire Avenue\’s new investment round was led by San Francisco-based Crosslink Capital, and also features iNovia Capital, BioWare co-founders Ray Muzyka and Greg Zeschuk, TriplePoint Capital, Jeff Lapin, Kevin Swan and Dr. Boris Wertz.

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Your bits may travel by coach.

Carriers in the U.S., Europe and Japan are building out LTE networks to deliver faster mobile data connectivity in droves. According to the GSM Association there are 1 million LTE connections today and there will be 300 million by 2015. These networks are heralded as good enough for watching movies, video chat and even as a transmission medium for television news! But marketing is beginning to meet reality as people realize that their blinding fast connections come with a catch–a data cap.

But carriers are preparing ways to change their pricing to charge by applications or services. And as they do, consumers will lose — namely because carriers will offer a variety of their own services that could strangle the quality of anything one might consider over-the-top.

Caps are crap, and operators know it.

Some folks see the caps and think that the speed with which someone hits the cap makes 4G service pointless — a recent report by Public Knowledge likens 4G data plans to “magic beans” and shows how someone hits the 2GB data cap imposed by AT&T (which currently doesn’t have an LTE network, only an HSPA+ network it markets as being 4G) in less than an hour of continued use. The more technically savvy point out that even without the caps LTE isn’t really a great solution for delivering the HD video that mobile operators like to show off as hall marks of their service.

Source: Public Knowledge

Operators aren’t dumb, and are testing products to reach their end goal — charging folks not for buckets of data, but for services. So a consumer might buy a data package as well as a video chat package for $5 more a month. Shubh Agarwal, VP of Marketing for Mavenir Systems (see disclosure), says that carriers believe that the transition to LTE is really their last chance to avoid becoming a dumb pipe delivering data. Mavenir sells gear to telecommunications providers that delivers quality assured video chat, presence and other services.

The tools for changing the pricing paradigm are here.

He says carriers like his company’s gear because it allows them to control the quality of the customer experience for high-bandwidth consuming services such as video chat. As an example, because the carrier knows how many people are trying to video chat at a single tower, it can lower the quality on the calls to ensure everyone has some connection. An over the top service on the other hand may just refuse to work. Or as explained in this blog post from Allot Communications on the Mythbusting: Top Three Misconceptions about LTE:

Mobile data charging is a pickle for most operators. When offered quota-based plans, subscribers react with confusion (not at the least alleviated by data plan calculators and other visualization aids). Frustration comes next, when they are offered ‘unlimited’ data plans, but those are too slow or get throttled. Selling bits and bytes simply doesn’t cut it anymore. Strand Consult is already predicting pricing model failure, suggesting that “any operators that believe they can increase prices by [simply] introducing LTE are in our opinion naïve.”

Forget about a Facebook phone, what about a Facebook broadband plan?

Allot goes on to suggest what will emerge is a quality of experience metric for showcasing how content looks on various networks as a means of differentiating between them and thus making one more “valuable” than others. So instead of call quality or “fewer dropped calls” networks might advertise their video quality, with those buying the carrier’s service getting the best-quality picture. It also suggests that carriers will charge by applications.

So while most operators implement tiered plans or claw back benefits consumers enjoyed under unlimited plans, there’s a bigger game at play.

Charging for services creates a mobile broadband class system

This week Sandvine, a maker of deep packet inspection and ISP billing gear, released software for mobile operators that can track every bit and bill for it appropriately through custom plans. From its release on the update to its software:

Additionally, the new release allows operators to create a virtually unlimited number of service plan offerings, by enabling operators to differentiate the service plans using combinations of application, location, device awareness, access technology, and volume or time metrics.

The net neutrality debate will never die.

The tools are there and operators will deploy them. So what does that mean for consumers? When it comes to services such as video chat, Tango, Skype or others aren’t going away just because a carrier might use Mavenir’s gear to offer its own branded service which delivers a higher quality of experience. When the FCC implemented its network neutrality rulesit said operators can’t discriminate against over the top services in the video and voice space but it also said problems would be dealt with on a case-by-case basis. But as carriers charge users for services, it creates the potential for carriers to optimize their pipes for their own services and leave a smaller section of bandwidth available for over-the-top services.

This debate was brought up and then ignored in the debates over wireline network neutrality and it’s likely that regulators will shy away from trying to control how operators control their pipes or what types of services they can offer. Which then means that for consumers that don’t want to pay a la carte for carrier-supported products when there’s an existing OTT option, may only have the threat of competition from other mobile broadband providers to keep their mobile broadband provider honest. Which is yet another reason AT&T swallowing T-Mobile could be bad for consumers.

Mavenir is backed by Alloy Ventures, an investor in GigaOM’s parent company, GigaOmni Media.

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