Everyone likes “free.” Heck, there are plenty of marketing tomes that say “free” might just be the most powerful word in marketing. Well, as usual, I’m here to burst your bubble about one particular aspect of something free which I find detrimental to us all. It’s something aggressively marketed by T-Mobile and Verizon but others do it as well. It’s called Zero-rating of data. Their “Binge On” and “FreeBee Data 360” offerings provide subscribers with free streaming media that doesn’t count against their data plans.
The basic concept is that ISP‘s – in this case the two aforementioned wireless carriers – don’t charge consumers for data used when the consumers use specific sites or services. That’s pretty appealing. In fact, T-Mobile reports that mobile subscribers who sign up for their “zero-rated video” offering immediately double their consumption of video. So why is this a bad thing?
Verizon bought Yahoo this morning. They previously bought AOL. One might expect that those two companies and their services will become zero-rated for Verizon customers. While T-Mobile has yet to buy a competitor, one can easily imagine them assembling their own lineup of content and service providers. Cable providers have been doing the same thing for a long time with fledgling cable networks. They take equity in these companies and, in return, provide carriage on a better tier (meaning it’s more widely available). These cable providers are also ISP’s.
The reason our digital ecosystem is flourishing is that until recently there was no one picking losers and winners. Zero-rating does exactly that. Think about the food court at a mall. There are two restaurants side by side, but one serves free food which is paid for by the mall landlords. Which one do you think will have the longer line, regardless of the quality of the food served? If a new streaming service enters the market but there is no data charge to visit their entrenched competitors, what chances do they have to succeed?
So yes, everyone likes free but in this case free is a bad thing. It will restrict the development of new companies. It will give more power to the gatekeepers. It enables internet providers to gain a significant advantage in the promotion of in-house services over competing independent companies, especially in data-heavy markets like video-streaming. Does that make sense?