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March 11, 2011

What Every SaaS Website Should Know About Net Neutrality

If you operate a SaaS (Software as a Service) website that provides streaming content, or if you’re a consumer who is concerned about price levels and availability of streamed content, then you should be tuned in to the debate over net neutrality. The outcome may substantially affect your business and your pocket book.

Are you a little confused about what net neutrality is all about? Welcome to the club. Issues in the net neutrality debate are complex and somewhat obscure.

The best way to begin an understanding of the net neutrality debate is to focus on two fundamental drivers of the debate.

First, The Background

Content is king on the Web.

For example, one only has to look to the explosion of mobile device apps. Recent predictions project revenues for mobile device app sales to surpass revenues for mobile phone calls in the next two or three years. Mobile apps stream data and content.

And consider the data and content streamed by Google and YouTube to your computer.

Issues regarding access to, and delivery of, all this content and data give rise to the commercial issues in net neutrality Driver No. 1.

Driver No. 1 – The Commercial Case For Net Neutrality

Traditional phone and cable companies control access to the Web. They provide the “on-ramps” or the “pipes” for access to the Internet.

One of the key concerns of net neutrality advocates is the fear that phone and cable companies might interfere with access to websites and discriminate in pricing, resulting in a decrease in competition and higher prices for consumers. Although to date there is little evidence that this is a problem on the Web, net neutrality advocates nevertheless are concerned that the perceived problem may become real.

This concern has led to the recent adoption of net neutrality principles by the Federal Communications Commission which has the effect of ushering in government regulation of the Web for the first time.

A good example of the commercial case for net neutrality is a hypothetical situation involving Netflix. Netflix sells its movie streaming service to consumers for approximately $10 per month. Netflix’s service competes with cable companies that offer movies on demand for $5-7 each. So, there’s a clear pricing advantage in favor of Netflix (even though the nature of the services differs). Hypothetically, if the cable companies were to ever discriminate in pricing to Netflix, the pricing could be passed on to consumers resulting in on-demand cable movies being less expensive than Netflix’s streamed movies. Netflix could go out of business if this hypothetical situation were to actually occur.

The net neutrality principles would address this hypothetical situation. In addition, the net neutrality principles would prevent phone and cable companies from blocking Internet content and online services from rival companies or providing preferential treatment to paying clients.

Driver No. 2 – The Political Angle

There is a political angle with net neutrality, and this is the basis for most of the passion from both advocates and opponents of net neutrality.

To understand the political angle, it’s important to gain insight into the movement known as “media reform”. The media reform movement is essentially a liberal, progressive movement that opposes media outlets that are controlled by corporate interests which are not aligned with progressive objectives.

One of the key figures in the media reform movement is Robert McChesney, a University of Illinois communications professor who, in 2002, founded the liberal lobby Free Press that was funded primarily by a network of liberal-leaning foundations. Robert McChesney has stated that his goals include getting rid of “media capitalists” in the phone and cable companies and debunking the myth of a “liberal” bias in the mainstream media.

Understandably, conservatives fear that one of the primary targets of the media reform movement is the elimination of conservative talk radio and cable TV based on a theory similar in some respects to the long-defunct “Fairness Doctrine”. Conservatives fear that government control over the Internet in the form of the net neutrality principles is merely the first step toward government control over conservative talk radio and cable TV outlets.

It’s easy to see how these political differences stir up considerable passion from advocates and opponents of net neutrality.

Conclusion

The two drivers discussed above do not include all of the relatively complex issues involved in the net neutrality debate; however, they are helpful in understanding the commercial and political factors that drive much of the debate.

It’s too early to tell where net neutrality will take us. Because the stakes are high, it’s important for SaaS websites and consumers of online content alike to stay tuned as the debate continues.


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