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

from the just-too-expensive dept

Wed, Jun 4th 2014 2:16pm — Mike Masnick

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?

ContextlyOpenInternetComments (PDF)ContextlyOpenInternetComments (Text)

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Filed Under: entrepreneurs, fast lane, fcc, innovation, innovators, jamie wilkinson, net neutrality, open internet, ryan singel, slow lane, small business, startups
Companies: contextly, vhx

24 Comments

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silverscarcat (profile), 4 Jun 2014 @ 1:40pm

It's simple!
They support whomever throws the most money at them.
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Mason Wheeler (profile), 4 Jun 2014 @ 2:58pm

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."

Oh, it's very simple; you just need a basic understanding of Ayn Rand morality.

Commercial success = inherent proof of goodness. Therefore, a giant company (such as Comcast and the other telcos) is inherently good as demonstrated by their success, and they deserve the freedom to do whatever they want without regulatory interference from the government that might impede their ability to continue to be successful.

Keep this basic idea in mind, remember that it's essentially the trump card of Ayn Rand morality, and you'll have no trouble understanding why Republicans take such bizarre and counterproductive positions when it comes to regulation of powerful and abusive businesses.
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- Anonymous Coward, 4 Jun 2014 @ 5:16pm
  
  Re:
  Rand is just a new cheerleader for the justification of greed that the Protestant Work Ethic first started: http://en.wikipedia.org/wiki/Protestant_work_ethic
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- Anonymous Coward, 5 Jun 2014 @ 8:20am
  
  Re:
  Not to mention Republican and other 'pro-business' politicians have already shown themselves willing to do things that hurt the public in some way in order to help the bottom line of big business. For example
  
  -Support repealing environmental safety laws
  
  -Support corporate sovereignty to try to protect big business from getting regulated for public health and environmental safety reasons
  
  -Support corporate giveaways disguised as other policies (like Florida's drug testing for welfare recipients, which is a big financial boon for companies that provide drug testing, which is also a company the governor himself owns a lot of stock in)
  [ link to this | view in chronology ]
- MonkeyFracasJr (profile), 5 Jun 2014 @ 11:38am
  
  Ayn Rand vs. Modern 'free' Capitalism
  Except that everyone who trots out Rand's Objectivist philosophy conveniently omits the fact that the companies in that "reality" would be a vehemently opposed to laws favoring a given business model as they would any regulatory oversight.
  
  I know the game of politics is to cherry-pick the "facts", but that doesn't make them factual!
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  - John Fenderson (profile), 5 Jun 2014 @ 1:31pm
    
    Re: Ayn Rand vs. Modern 'free' Capitalism
    Yes, this is as curious as all of the people who insist on citing Adam Smith's "invisible hand" yet conveniently omit that in the very same book, Adam Smith also posits that free markets are impossible without regulation.
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AnonCow, 4 Jun 2014 @ 3:21pm

If campaign contribution pages could only be served through the "slow lane", the debate over Net Neutrality would have never even happened.
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Androgynous Cowherd, 4 Jun 2014 @ 3:35pm

Women
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.

Wait, what? You'd like to see fewer scantily clad women? :)
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- Mason Wheeler (profile), 4 Jun 2014 @ 4:20pm
  
  Re: Women
  Meh. You've seen one scammy Internet ad featuring scantily clad women, you've seen 'em all.
  [ link to this | view in chronology ]
Anonymous Coward, 4 Jun 2014 @ 4:06pm

so where were these explanations when the discussions were going on? in fact, where were the entrepreneurs themselves? everyone knew what was going to happen. wheeler is a former employee of the cable companies, spending quite a while lobbying for them and for Obama. the way he has ignored everything from everyone and still gone down the road he chose shows where his loyalties lay. unless there is something serious happen, the USA can kiss goodbye to net neutrality and hello to even higher prices coupled with even worse services
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- Mike Masnick (profile), 4 Jun 2014 @ 5:36pm
  
  Re:
  so where were these explanations when the discussions were going on?
  
  The discussion is going on now. There was nothing to discuss before, because the FCC had rules, which the court tossed out a few months ago. Now is the appropriate time.
  [ link to this | view in chronology ]
Anonymous Coward, 4 Jun 2014 @ 4:14pm

where ever money can be made and someone in a powerful position can assist, you can bet your life that will be the road taken. whether there is any incentive for that powerful person to chose that particular road, i leave you to make up your own minds!
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Anonymous Coward, 4 Jun 2014 @ 5:26pm

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
On the contrary, it makes perfect sense, as long as you're a complete sociopath.
If small businesses became more and more successful and unemployment started dropping, you wouldn't be able to get easy votes by promising to fix the problem, or shove arbitrary bills through by calling them "jobs bills".
Several hundred politicians get to live cushy lives with six-figure salaries, perfect medical care, etc. All it takes is the sustained misery of a few hundred million people.
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Stephen, 4 Jun 2014 @ 6:37pm

Wipe out!
Come to think of it, an ISP could wipe out whole sections of web pages from showing up properly against the wishes of the company providing the web page and then demand payment to have those sections show up properly, similar to what the United States does for web pages that it deems as against its political interests (but with the payment part, I guess).
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- Angelo, 4 Jun 2014 @ 10:45pm
  
  Re: Wipe out!
  That would be one of the effects.
  
  I see this as a kind of copyright on the web where the biggest players would force the smaller players to pay up to have their web-pages, web-services, etc., fast-tracked (excuse the pun) to the consumers.
  
  The debate here in South Africa has only just started and I can tell you, there are already people calling for boycotts against ISP's even considering ending net neutrality, much less implementing it.
  
  The threat to free-speech is a very real one.
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AnonymouseCoward, 4 Jun 2014 @ 7:30pm

And ...
the effect this has on idea vs execution should be fairly obvious.
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Whatever, 4 Jun 2014 @ 9:52pm

hinging
All of this hinges on the concept that ISPs will intentionally slow the rest of the internet down to the point of being unusable.

Of course, if your business model depends on delivering 4-10meg a second constant flow 24 hours per day, you are going to be shit outta luck. Netflix is finally figuring that out.
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- That One Guy (profile), 4 Jun 2014 @ 11:12pm
  
  Re: hinging
  Indeed, how dare the people who use service like Netlix, how dare they try and fully use the service that was advertised and sold to them? Obviously the blame rests entirely on Netlix for causing their customers to pull such a downright nefarious stunt! /s
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- Anonymous Coward, 5 Jun 2014 @ 2:18am
  
  Re: hinging
  Why does anything hinge (rely) on ISP intentionally slowing the rest of the internet down? All they have to do is deliver the content that their customers are requesting. If it were YouTube or Disney serving the video data, nothing would be different. As the ISP gets more customers, and the new customers cause more data to be requested, the ISP needs bigger pipes... which the ISP pays for with the money that the extra customers give them. Natural growth, and everything just works.
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KevinEHayden (profile), 5 Jun 2014 @ 7:13am

Great News for Non-US Start-ups!
Well, at least it will be good for those of us not based in the US, with non-US users. Since the rest of the world will probably still have some version of net neutrality, start-ups in other countries should be able to establish themselves with enough cash/backing to be able to pay the broadband providers when they decide to enter the US market.
US startups will be crippled due to FCC policy and service provider greed. What a win for those of us in other countries. Thanks FCC, ATT, Comcast et al. Keep it up!
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Anonymous Coward, 5 Jun 2014 @ 10:39am

Politics aside, and it really can't be a political issue because NEITHER side understands the technology, the real point here is that the "Fast Lane" allows the ISPs to minimize the outlay for infrastructure upgrades and maximize the monetization of that which actually was upgraded. It means the legacy stuff, slow servers, copper network, etc., gets to continue in service for a lot longer. Since that old legacy stuff has been long since paid off, all receipts from it are pure profit. We all know these outfits are operated purely for profit, and divil take whoever gets in the way.
.
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GEMont (profile), 5 Jun 2014 @ 12:10pm

Wrong question
"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?"

Methinks ye might have asked the wrong question.

Try this one.

"Do they really support innovation, small business and entrepreneurship, or do they just want to put a few hundred thousand dollars away in their off-shore accounts and snort coke with semi-naked bimbos on their new yachts?"

I think the answer is pretty obvious, but naturally, all the rest of you true-believers will have to wait till the politicians actually shit on your shoe - again - before you "get it".

C'est la vie eh.

---
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A. Lauridsen, 6 Jun 2014 @ 2:03am

Sounds to me like the US is busy making life difficult for their tech industry.

NSA undermining confidence in the security of American technology and services. FCC making life difficult for innovation.

Ruining confidence in existing products and then making it harder for new products to appear? Somebody must really be out to hurt US tech.
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- 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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