7th August 2014

Zero-rating and the Mobile Data Problem

"The most expensive part about owning a smartphone and being connected to the internet isn’t the smartphone; it’s the data.” - Mark Zuckerberg

The Mobile Internet is amazing. 

Today you can order a black car, a massage, even a ManServant™ right from this tiny device that sits so easily in your pocket, that it feels like smartphones are what pockets were designed for.

But of course, that assumes you have at the very least a smartphone with mobile data. Which is not the case for a large part of the world. 

If you believe in the promise of the Mobile Internet and want to help it grow, either as an app developer, investor, or just conscientious consumer, then you need to understand two issues that constitute some of the Internet’s biggest threats today: Zero-Rating and the Mobile Data Problem.



ZERO-RATING

"Zero-rating", where companies make deals with carriers to subsidize data costs for certain apps, is one way to expand mobile Internet access.

An example is in Zambia, where Facebook (via Internet.org and Airtel) is distributing an “Internet starter kit”-like app with free data to a selected group of sites, including: Facebook / Facebook Messenger (duh), Google Search, Wikipedia, and other locally-targeted sites (e.g., Zambia uReport for AIDS/HIV health info).

While possibly well-intentioned, Facebook’s app - and other similar Zero-rated deals - puts in jeopardy the fundamental openness that’s made the Internet so amazing so far.

Essentially, Zero-rating is against the principles of net-neutrality. Several folks have already posted well-articulate reasons why Zero-rating is so dangerous:

"Zero-rated mobile traffic is blunt anti-competitive price discrimination designed to favor telcos’ own or their partners’ apps while placing competing apps at a disadvantage. A zero-rated app is an offer consumers can’t refuse. If consumers choose a third-party app like Dropbox or Netflix, they will either need to use it only over Wi-Fi use or pay telcos hundreds of dollars to use data over 4G networks on their smartphones or tablets.” (via Antonios Drossos, Gigaom)

"But 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. 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.” (via Fred Wilson)

Perhaps more people feel they can afford smartphones, even if they can only afford access to the few apps that fall on the pre-approved list. But that’s an impoverished vision compared to the democratizing ideal the internet at its best represents.” (via Marcus Wohlsen, WIRED)

"An internet for poor people that in any way provides less access than the full-throated internet those of us reading this enjoy? That’s troubling. It’s another digital divide." (via Mat Honan, WIRED)

Still, Zero-rating will probably work. It’ll get apps in the hands of consumers who normally couldn’t afford them. 

Because, as some behavioral economists have shown, free products are extraordinarily, irrationally attractive.

But Zero-rating works at a giant cost. Is there a better solution? And what problem, really, are we trying to solve?



THE MOBILE DATA PROBLEM

Let’s look at a few charts.

The first is via Ericsson from late last year, showing the literal exponential growth of mobile data, turning these “phones” into anything but telephones.

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The next two are via Ericsson and Cisco (from earlier this year) that show the general consensus that the industry expects another 10x mobile data growth in the next 4-5 years. 

image

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It should be clear by now that mobile data usage has been growing tremendously and will continue to grow. 

Now let’s look at a final chart. This one is from Alcatel-Lucent (2011) that shows a similar growth story but in mobile data per subscriber, overlaid against mobile carrier unit economics. 

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This shows the crux of what’s going on. As mobile data usage has grown, per-unit data revenue and per-unit costs have both decreased. But revenue is decreasing faster than costs, leading to shrinking mobile carrier margins.

And as the reach of the Mobile Internet continues down the economic pyramid, consumers’ ability to pay for data also decreases, further worsening carrier economics.

(While some improvements may cheapen per-unit costs in the short-term — e.g., the move to LTE — these appear to be linear shifts that are unlikely to withstand the exponential growth in demand.)

These worsening economics are passed down to consumers in the form of bandwidth data caps (becoming much more common here in the US), expensive pricing, and less investment in infrastructure.

In fact, as we continue to see cheaper handsets, faster processors, richer screens, larger amounts of storage, and more efficient batteries, one weak link emerges as the limiting factor in our smartphone experience: access to bandwidth.

Which means that, as our worldwide appetite for mobile data continues to expand, satisfying that hunger is going to get harder and more expensive.

This is the Mobile Data Problem.

That’s what Mark Zuckerberg alludes to in the quote above.

And it’s one of the biggest problems facing the Mobile Internet today.



MAKING THE MOBILE INTERNET UBIQUITOUS

Let’s find a better solution to the Mobile Data Problem than Zero-rating apps.

Luckily, companies are already exploring a few options:

And I’m sure there are other options that we’ve yet to explore.

Still, no one solution will solve by the problem by itself. Each is likely to be better suited for some types of content than others — e.g., hot air balloons for low-bandwidth communication.

But this is the overall problem we need to address, if we want the Mobile Internet to continue to expand and reach more people and fulfill more of its potential and just continue to be amazing in general.

Which is one of the reasons why Mike and I (and a few others) recently started Vast (currently in private beta). If you’d like to help us or learn more, please reach out.

6th March 2014

On to the Next One

Last month was my last at GroupMe. After 3 years, I’m moving on.

Those 3 years have passed by quickly. When I first met Jared and Steve in January 2011, I could tell right away that GroupMe was something special. In fact, the opportunity they were pursuing - helping you stay in touch with the important people in your life - was the same mission that Andy and I had been focused on for over 2 years with Sensobi.

At Sensobi we were building a smarter address book for your phone. But GroupMe had a much more powerful vision: a brand new way to communicate. Our idea was good; theirs was great. And after 2 years building Sensobi with limited traction - several hundred thousand users - Andy and I saw that what we were building wasn’t growing nearly fast enough. 

So when Jared and Steve offered to acquire us, we saw a new opportunity: keep pursuing our mission while helping this awesome team build a rocketship. We officially became part of GroupMe in April 2011. 

3 years and one, twothree acquisitions later, I feel genuinely lucky to have been a part of this team. We helped pioneer group messaging and brought it to millions of people, who now send billions of messages to their friends, family, and coworkers. And we had fun doing it.

But now it’s time to move on.

To everyone I worked with at GroupMe, some of whom have already left: it has been a real pleasure working with you these past few years. Hopefully our paths will cross again soon.

To Andy Cheung, my cofounder and coworker for over 5 years, close friend for 18 years, fellow Jersey native, and the Harold to my Kumar: Stay on target. Stay on target.

And now, I’m diving back into the startup river currents with something new, something I am really excited about.

What’s next? Not ready to announce anything at the moment, but: it’s mobile, it’s big, and it’s with some of the smartest people I know.

But let’s not get ahead of ourselves.

27th February 2014

Andy recently reminded me about this fun story:
Once upon a time, when we had first launched Sensobi, we received a cold email from the founder of another BlackBerry address book that had also just released. That other company was Whatsapp.
Too bad we didn’t “keep in touch and compare notes” better.
Super happy for those guys.

Andy recently reminded me about this fun story:

Once upon a time, when we had first launched Sensobi, we received a cold email from the founder of another BlackBerry address book that had also just released. That other company was Whatsapp.

Too bad we didn’t “keep in touch and compare notes” better.

Super happy for those guys.

18th July 2013

Not only can you not plan the impact you’re going to have, you often won’t recognize it even while you’re having it.

The impact is what others frame for you and the world, after it happens.