Monday, 6 July 2015

Internet.org and why it makes sense now


In the previous post Data uptake in India, I discussed about the current and future state of mobile data consumption in India and the organic ways to achieve the same. This article talks about OTT services and internet.org in particular.


SaaS apps such as Ola will continue to contribute towards organic growth for data among people who can't afford it. But these organic methods will still take a lot of time to start showing results and will depend upon many factors such as the number of successful SaaS apps and the scale which they can achieve. If SaaS apps concentrate at urban areas alone then that won't help much in data uptake since rural areas dominate large parts of India and bringing these rural people online is the real challenge from a long term perspective.

Therefore for short term growth of data among the poor people certain number of inorganic ways can be used.

To be very clear, Organic data growth to me is the one where a user subscribes to a plain/pure data pack and pays from his own pocket. Inorganic data growth is where data is subsidized by a particular organisation/company or when a user pays for a "modified" data pack designed specifically for a particular purpose.

The best way to drive inorganic growth would be to subsidize the cost of internet for poor people who can't afford it. When it comes to subsidies,  the first name to come in our mind is the government. Indeed the US is planning the same with its lifeline initiative. The lifeline initiative in US began with the aim of subsidizing talk time/air time and SMS for Americans who can't afford. Now there are reports of the FCC mulling to include data also as a part of the lifeline initiative.

Even governments of emerging countries can start to subsidize internet for people who can't afford it but as far as I have seen in most emerging countries the governments have been slow in implementation. When implementing such programmes, corruption in emerging countries leads to very little benefit reaching the end user.

Apart from government help, telecom operators and internet companies who derive revenues from ads are actively trying to drive up inorganic growth through initiatives like internet.org etc. But all these initiatives violate Net Neutrality as I have discussed in my previous article Net Neutrality in developing countries.

Even internet.org violated Net Neutrality but ever since Facebook converted internet.org into a programme which any developer can tap into it made internet.org one of the best things on earth.

Although the definition of Net Neutrality might mean different for different people. I for one feel Net Neutrality is all about maintaining fair competition and not giving any one internet entity unfair advantage over another or trying to pull down an entire industry since it affects the operators in some way.

So going by that definition internet.org as of now doesn't violate Net Neutrality. Initially Facebook used to violate Net Neutrality since it only selected a group of companies, most of which didn't compete with each other but after changing internet.org to a platform which every developer can leverage, at least in my eyes it no longer violates Net Neutrality. Only restriction which Facebook imposes for developers signing up with internet.org is that their apps shouldn't consist of any data hogging content and that in my opinion make perfect sense. I mean it would be disastrous if a netflix like startup end up being a part of internet.org. A netflix like startup if included in internet.org would clog the networks and degrade the performance in general for everyone.

I truly feel that after opening up to everyone internet.org, its currently the best way to subsidize internet without actually violating Net Neutrality. Internet.org as of now has only Facebook backing it up along with telecom operators but I feel other internet companies such as Google, Microsoft etc should also join forces to create a bigger subsidized internet where everyone gets a fair chance and no one if put to a disadvantaged.

Subsidized internet -

I have a detailed a complex mathematical model below which is difficult to understand but please do give it a try.

X - Companies interested in subsidising internet
Y - Companies whose revenue market share > 0.5%
Z - Companies whose revenue market share < 0.5%

If the internet is subsidized by a particular company/companies, it should be susidized for all or for none. That's the only way one can ensure fair competition. Lets say X companies are interested in being part of the subsidized internet. Now out of the X companies lets say Y companies have a revenue market share(RMS) of above 0.5%, then these Y companies should pay or can afford to subsidize the internet access from their own pockets. Lets say Z companies that are part or want to be part of the subsidized internet don't have a revenue market share above 0.5%. These companies can't afford to subsidize internet from their own pockets so subsidy for these Z companies should be paid by the Y.

The subsidy for these Z companies that have RMS>0.5 can be A. This A needs to be paid by the Y companies which have RMS>0.5%. This A amount to be paid will again vary. For example companies like Facebook, Google etc that have very high RMS will obviously pay a bigger amount of A whereas companies with a lower RMS will pay a lower amount of A depending on factors such as RMS/profit/market capitalization etc.

Unsubsidized Internet -

If certain companies aren't interested in being part of the subsidized internet then they can be part of the unsubsidized internet. Access to such companies can then only be gained be people who have normal data packs. These companies then don't have to pay any amount to telecom operators for subsidy for others nor for themselves.

FAQ -

Q1. How does this create a level playing field ?

A1.In case the developer/company is a new entrant then the app/website of the developer/company will be one which has 0% RMS. A 0% RMS means the developer/company gets to be a part of the Y group(companies whose RMS<0.5%). Being a part of Y group means data subsidy for the developer/company is paid by the X group(companies whose RMS>0.5). So even though the company/developer might not have the financial muscle in the beginning they can still subsidize access to them. Thereby no one company is at a loss. Access to every app/website will be subsidized irrespective of the financial muscle possessed by the company/developer. Its just that at one point, the subsidy will be paid by someone else and as the company grows it will have to pay the subsidy for itself and for others too.

Once a company crosses 0.5% RMS,  then it will have to pay its subsidy itself and will also have to start paying a part of A amount(th subsidy paid for Y companies).

Q2.Won't the big companies be in a loss by subsididzing smaller ones ?

A2. Not really, I mean the potential benefits(read profits) for big companies by zero rating far outweigh the subsidy cost they may have to pay for smaller companies. Once zero-rating is allowed, companies such as Facebook and Google through aggressive marketing can make millions of new users. These new users will then in the long term provide millions of profit, a part of which will have to be given for small companies subsidy.

Q3.Will the subsidy model have to continue forvever ?

A3.Not really,once internet penetration reaches a certain level and economic conditions improve, the subsidy model can be slowly but surely rolled back.

Conclusion -
Such a model can be a win-win. Consumers who weren't able to come online because of economic constraints can come online. All developers get a fair chance in being accessible to the end user. Its very difficult to increase internet penetration without zero rating and without adopting a wholesale model like this, small developers will be at a disadvantage.

Note - Figures mentioned in the article are just for understanding purposes and should not be taken realistically.

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