Retailers stand to be both winners and losers in on-going Net Neutrality fight.
The Internet has always been the great equalizer. With its global reach and ease of accessibility, the Internet offers retailers an opportunity to punch far above their weight class — to act like a much larger company selling online to a global market that they could not otherwise reach.
In fact, the Internet has become the preeminent engine of innovation and driver of economic growth. A 2013 economic study by the Progressive Policy Institute, a Washington-based think tank, reported that the smartphone “app economy” is responsible for roughly 752,000 jobs in the United States alone, which is an increase from zero in 2007 when the iPhone was first introduced. This figure is growing rapidly — roughly 40% in 2013 over 2012. Overall, the Internet is a critical route of commerce, supporting an e-commerce marketplace that now boasts U.S. revenues of US$263-billion and growing fast.
But what would this robust Internet-driven economy look like if Net Neutrality did not exist?
Put simply, Net Neutrality is the notion that all bits are created equal. Proponents of Net Neutrality argue that Internet infrastructure providers — such as ISPs which provide home broadband Internet service — should not discriminate against the data that flows through its wires. For example, a consumer using the Internet to rent a movie should receive the same speed and level of service as a someone listening to streaming music or buying a pair of jeans from an ecommerce store. Boiled down to its constituent elements — data — these activities are all the same. Net Neutrality advocates think ISPs should simply provide a data service without slowing data down (or speeding it up, for that matter).
However, not everyone is happy with this scenario. Some companies, namely ISPs, want to be able to charge for faster Internet service or guaranteed service levels. After all, these infrastructure companies have very expensive networks to maintain and as Internet usage skyrockets, so too do costs associated with managing and building their networks. These groups are against Net Neutrality.
Take the example of Netflix, which has become a lightning rod for the Net Neutrality movement. During “prime time” hours (7 p.m. to 11 p.m) Netflix accounts of 34% of all downstream Internet use in the continental United States, according to network-equipment vendor Sandvine. The anti-Net Neutrality camp wants Netflix to pay extra for its popularity because, they argue, video downloads are gobbling up valuable bandwidth.
Netflix is targeted for another reason, too: More and more of its customers are cord-cutters — consumers who have canceled their cable TV subscriptions in favour of Internet-only video-on-demand. The same ISPs that sell Internet access are often the same companies selling cable TV service.
In the U.S., the Federal Communication Commission (FCC) is in the midst of a fierce debate with lobbyists on both sides of the Net Neutrality issue (they’re expected to make a formal announcement in early February 2015).
Should the FCC regulate the Internet just like telephones — which are protected and can’t be sped up or slowed down — or should the FCC allow Internet fast lanes where big companies can opt to pay extra for faster speeds? The issue has reached such fevered pitch that even the U.S. President has weighed in on the issue (he’s pro Net Neutrality). While the FCC ponders its decision, worried Internet entrepreneurs and major retailers are starting to imagine what life would be like if Net Neutrality fails. What impact would it have on their ecommerce business?
Without Net Neutrality, bigger retailers would, in theory, have an advantage because they’d be able to pay ISPs to guarantee the best available broadband speeds during peak selling times like Christmas, Black Friday, Cyber Monday, etc. These deep-pocketed online businesses would be able to secure faster Internet speeds, and thus provide a better shopping experience for customers at the expense of non-paying retailers, whose customers would likely be frustrated by a slower shopping experience.
Research shows that a 1 second delay in page response time can result in a 7% reduction in conversions. Put into perspective, if an e-commerce site is making US$100,000 per day, a 1 second page load delay could potentially cost US$2.5-million in lost sales every year.
Under this scenario, the Internet would no longer provide a level playing field to all businesses, removing an edge that many startups have relied on. Online shoppers would experience different speeds for retailers depending on whether they’re paying-to-play or not. This would surely drive customers to online businesses that offer a superior buying experience.
Of course, all of this is in theory. No one knows for sure what ISPs may or may not do to the data flowing through their networks should Net Neutrality fail. And there’s no guarantee that a pay-to-play scenario would unfold for online retailers. What’s for sure is that speed is important factor in commerce and a faster digital experience has more potential to make money, so businesses should start optimizing their online businesses now for the best possible speed whether Net Neutrality succeeds or not.
Matt Dion is Vice President of Marketing for Elastic Path Software. Matt has more than 20 years of experience in marketing & partner strategy, business development, analyst relations, product marketing, product management, and strategic alliances. He can be reached at firstname.lastname@example.org.