Entrepreneurs Explain How The End Of Net Neutrality Would Mean Their Startups Don't Exist

from the just-too-expensive dept

Most of the discussion on the fight around net neutrality has focused on the big broadband providers, and to a lesser extent, the big tech companies. Unfortunately, that leaves out who will almost certainly be most impacted by all of this: the end users, as well as small startups and entrepreneurs. Many of you recognize the direct potential impact on you if your connections to certain content is stuck in the slow lane, but there's a much bigger impact out there in terms of how it will scare off or kill tons of new and powerful startups and innovations. Think about how many internet services you use regularly today. Consider how many of them didn't even exist five or ten years ago. How many of them have jumped up out of nowhere? Without a strong and open internet, realize how many future startups will never even come into existence, because the barriers and hurdles to starting a business become much, much higher.

Here are two compelling stories of startups which, frankly, almost certainly wouldn't exist if the telcos get their wish for fast lanes and slow lanes. The first comes from Ryan Singel, a former reporter/editor at Wired, who left a few years ago to build his own company, Contextly. He recently filed some powerful comments with the FCC. The FCC is receiving an influx of comments (over 45,000 last I checked) and that's even though the site was down for a while in the wake of John Oliver's plea to online commenters to speak out against "cable company fuckery." Not surprisingly, many of those comments are short (and angry) and simply state that the FCC should protect net neutrality and not give in to broadband providers' attempts to create a slow lane on the internet.

While those comments are useful, it's the thoughtful, detailed comments like Singel's that are even more important, and moving, in terms of showing how this debate has a real and serious impact on innovation. Singel's startup, Contextly, tries to be the antidote to all of those crappy "recommended content" services that many news sites use to point you to "other things you may be interested in" on other sites, but always seem to actually consist of scantily clad women and bogus diet "secrets" because that's what pays the best. Instead, it focuses on keeping people on the sites they're already on, pointing them to related content on that site (similar to what we have beneath our stories here on Techdirt, though we built our own system for that).

Singel eloquently lays out how Contextly almost certainly wouldn't exist under the FCC's proposal which would allow for "commercially reasonable" discrimination.
Like many other startups, if there were a fast lane, we would have needed to be in it on day one. We provide content recommendations at the bottom of news stories. That means that every time a news story on one of our publishers is read, a request is made to our servers to get the right recommendations and we return them along with thumbnail images—anywhere from 4 to 16 images per page. While these are individually not large, the bandwidth quickly adds up when you are serving hundreds of millions of images a month, and need to do so quickly to readers around the country and the world. It would not matter if the “slow lane” was “pretty fast.” What would matter was whether we could serve our clients as effectively as our competitors. Being unequal alone would put us at a disadvantage.

We are able to manage these costs because the cost of technology and bandwidth has dropped massively, due to technology and competition. This has made it possible for a bootstrapped Contextly—founded with the modest savings of a former journalist—to compete with companies that have tens of millions of dollars in capital.

[....]

The FCC should not make it even harder to create a company by adopting its proposal to authorize “commercially reasonable” discrimination rather than to forbid “unreasonable discrimination.” AT&T and Verizon have made it very clear they would like to extract tolls from online services such as Contextly. That's despite the fact that it's their customers who are requesting news stories from our publisher clients. Both Contextly and our publisher clients pay for our outgoing and incoming bandwidth to our hosting providers - but now the FCC proposes to let consumer Internet Service Providers extract fees on both sides of their networks.

If this were the case before I started Contextly using my savings (which were not substantial), I would have never started the company. There's no way I could have afforded to pay Verizon and AT&T and Comcast and Cox and Sprint and Time Warner Cable and AOL and T-Mobile to get Contextly images showing up quickly. Our competitors—the ones who post ads to diet pills and “hot” photos of fitness enthusiasts—could have buried us just by paying for the fast lane—without even needed exclusivity, which they could have negotiated under the Commission’s proposal.
Even the very idea of "commercially reasonable" is somewhat offensive to innovation and enterpreneurship, because it's bureaucrat-speak for "hire crazy expensive lawyers" and argue over this for years. That is not a recipe for innovation:
Hiring lawyers and negotiating complicated contracts is expensive. I incorporated Contextly myself to avoid significant legal fees and operated on handshake agreements with early customers. Negotiating performance agreements with ISPs would have required resources and skills I didn't possess (and still likely don't have). ISPs could have also asked for equity at a time where I'd have had no choice but to accept their terms—since they control the pipes that get my clients' news and information to American citizens. My equity would not have been worth much at the time, so I would have had to give up much of my company, if not a majority, to get it off the ground.
As Singel notes, "commercially reasonable" is not a standard for enterpreneurship and innovation. It's a standard for big companies to kill innovation:
...the factors of the commercial reasonableness test are too vague to provide certainty—except for the certainty of expensive and time-consuming litigation if we choose to pursue it. These standards include “harm to consumers” or “to competition” and evaluation of a totality-of-the-circumstances. These standards are an invitation to hire dozens of expert witnesses and white shoe lawyers well versed in telecommunications, competition, and consumer law without sufficient guideposts. This standard has already failed to provide any guidance in the one other place it has been used--data roaming.

.... Indeed, a “commercial reasonableness” standard is a gift to the cable and phone companies who have armies of lawyers and can crush us in legal disputes at the FCC.
The second story is a similar one, coming from Jamie Wilkinson, the founder and CEO of VHX, an online video distribution company that helps film and video makers make their videos directly available to fans. Since VHX is in the online video distribution industry, the fact that Netflix is suddenly having to cut deals with ISPs to avoid clogged pipes is of great concern. As he notes, the fact that he might have to pay for access to a fast lane is already chilling his business, as investors are suddenly less willing to fund a startup like his, since they don't know how expensive it's going to be to have to pay off all the big broadband providers, just to offer the same video experience as Netflix or YouTube.
This chilling effect is very real and it's being felt by many startups already -- and hopefully more of them will start to speak out, like Singel and Wilkinson.

What's most incredible to me is that out-of-touch politicians who insist they're out there "supporting small business and innovation" are often the most against net neutrality -- even though their position will kill off many small businesses and innovation. Frankly, I still don't quite understand how net neutrality became a partisan "left vs. right" issue. In the early days, after the term was first coined, it wasn't a partisan issue and there were some interesting discussions about what net neutrality meant and why it was important. However, somewhere in the mid-2000s, it suddenly became a "Democratic" issue, with "Republicans" being opposed to it, claiming it was "regulating the internet." However, as we've discussed, the internet is already heavily regulated. The question on net neutrality isn't about regulating or not regulating the internet, but figuring out how it will be regulated: will it be regulated in a way that allows for significant competition and innovation -- or will it be regulated to allow a few giant oligopolists to become gatekeepers to innovation.

Considering that both Democrats and Republicans like to talk about how important innovation, small business and entrepreneurs are, it makes no sense for them to support plans that would actively harm innovation and small businesses -- and yet, that appears to be what many are doing. Obviously, much of this is because the big winners if net neutrality dies will be Comcast, AT&T and Verizon -- three giant companies who also are huge political donors. But if Congress (and, for that matter, the FCC) are serious about supporting and encouraging entrepreneurship and innovation, they should be paying much more attention to what those startups are saying about how all of this impacts their business right now.

And then the question is pretty straightforward: do they really support innovation, small business and entrepreneurship? Or do they support the big telcos looking to set up tollbooths to make innovation more expensive?

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  1. identicon
    Anonymous Coward, 6 Jun 2014 @ 5:34am

    Re:

    Look up USSR, Khrushchev statements, 1950's. They seem to be following the plan pretty well. Remember, this is a 100 year plan. They're in no hurry.

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