Riffing Fred Wilson’s pessimistic ‘zero-rating’ thinking

Fred Wilson zero-rating

Fred Wilson’s Twitter avatar

Summary

Fred Wilson’s zero-rating warnings don’t stand up to scrutiny. Here are five reasons.

The Back Story

Nuzzel reports that:

Yesterday, we described the Sprint deal as a Netflix-like unbundling of mobile data options, an à la carte alternative to standard all-access data plans that resemble nothing so much as cable’s all-or-nothing bundles that force you to pay for channels you don’t actually want. And there’s a truth to this. But a prominent New York venture capitalist has a far more pessimistic take on the new trend toward unlimited data for certain apps. Fred Wilson, co-founder of Union Square Ventures, views such deals—which he calls “zero rating”—as a discriminatory salvo against mobile innovation.

“What all of this zero rating activity is setting up is a mobile internet that looks a lot more like cable TV than our wide open Internet,” Wilson writes. “Soon, a startup will have to negotiate a zero rating plan before launching because mobile app customers will be trained to only use apps that are zero rated on their network.”

Is Wilson right or is he smoking some kind of crack we’ve all yet to discover?

Analysis

  1. The unbundling operations Nuzzel describes are a major step forward and far removed from the cable TV analogy that Wilson describes. For the first time in a long time, Sprint has recognized that if it wants to keep customers sticky then it needs to overcome the data cap issues that are a major source of customer complaint. In the short term it ups their costs but in the long term should prove more attractive. And as Wired points out in an earlier article, more carriers will follow suit in a Netflix like manner.
  2. Wilson argues that this move favors a few huge operators who can afford to pony up for the privilege. Ergo, mobile innovation gets stunted. I’d argue this is about recognizing a reality that has been annoying customers and providing a remedy that will prove popular.
  3. Wilson forgets the impact of the Apple AppStore and google Play Store. Aside from their immense popularity as platforms for launching mobile apps, they work as self regulating testing grounds for what works and what doesn’t. They’re not perfect but they mostly work. That is an inevitable outcome of runaway innovation. Sometimes things are just too early, other times they’re of no obvious value. At other times, their value is immediate, obvious and timed perfectly if serendipitously. And at yet other times, apps go on a slow burn before becoming popular. No amount of data capping is going to prevent any of these scenarios from playing out.
  4. If Sprint and the others do become like cable TV I see it as playing out differently. Having gone down the road of picking apps for which ‘zero-rating’ is applied, it is hard to see how the carriers can go back. Rather, they can use this ‘channel’ as a way of testing apps themselves. What about Flipboard or Scoopp.it for example? What about segmenting users further so that those that want more business type apps have a choice of ‘zero-rating’ apps as a portfolio of services? How about different price points for those apps? The possibilities seem endless and, simpler for the consumer to understand. In much the same way that many apps start at free and progressively cost more as you acquire more functions, there’s no reason to believe the carriers could not use similar principles.
  5. Contrary to what Wilson believes, I am of the school that thinks people are well attuned to the openness of the Internet as a way of discovering what they want and need. The very fact that we’re seeing unbundling and packaging of the kind Sprint is trying speaks precisely to that trend. Users will quickly punish carriers who prevent or restrict access and so I don’t see how Wilson’s logic makes sense.
Den Howlett
Following 20+ years in finance and IT related roles, Den Howlett became a freelance writer/analyst/commenter specialising in enterprise IT. I co-launched Information Week in the UK (1996-7) and was a contributor to numerous UK based trade magazines. Most recently, he was a long term columnist on ZDNet. Today, Howlett provides strategic product direction support to a variety of enterprise vendors along with delivering M&A due diligence services. The raw idea for diginomica came to him at a time when enterprise topics in media were being crushed by consumer stories. There had to be a better way. diginomica is that better way.
Den Howlett

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Disruptor, enterprise applications drama critic, BS cleaner, buyer champion and foodie trying to suck less every day.
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  • dahowlett says:

    steverumsby Three is an outlier in the UK in that they are focused on data. Add in a reasonable voice plan and costs rise dramatically.

  • steverumsby says:

    Why tie the unlimited data only to specify apps? I long ago decided that the only data tariff that makes sense on a mobile device is an unlimited one. Those aren’t crazy extensive, at least here in the UK. The Three network offers one for £15/month.