Facebook and Google’s Race to Zero

And the Real Opportunity for the Next 5 Billion

Facebook plans to shell out $19B for WhatsApp, the instant messaging service on-pace to grow to 1 billion users in places like India, Brazil, and Mexico. Google is launching balloons up into the stratosphere via its “Project Loon” (cost undisclosed) to bring Internet connectivity to the billions of people without it. Why is $19B “a bargain” for WhatsApp? Why is Google sending balloons into space? And why might solar-powered drones for Internet connectivity be next? Facebook, Google, and other tech giants are racing to win the enormous business opportunity created by the next 5 billion people coming online, mostly with their mobile phones.

According to a UN report, more people in the world today have access to mobile phones than toilets. Mobile penetration in emerging markets is around 70-80% in Africa and Southeast Asia. Some countries exceed 90%, a penetration rate greater than any other consumer electronic device. Balloons and drones make colorful media stories. But I’d like to expose two lesser-known strategies employed by the tech giants in this race to capture the emerging market of billions. I believe these two strategies create more than just a business opportunity. They present a human opportunity for tech companies to improve lives. And the number zero is key.

Strategy 1: “Zero-rating.” Facebook, Google, and others want to dramatically reduce the cost of access to their sites on mobile devices. When I say drastically reduce the cost, what I really mean is eliminate the data-related cost for users. The cost to the user is zero. In the telecom world, this is called “zero-rating” traffic. Basically what this means is that a mobile operator will not charge a user for data when he or she goes to these “zero-rated” websites. Of course, it’s up to the carrier to decide whether they want to do this or not, and Facebook and others are currently in a race to expand relationships with telcos so users in developing markets will access the Internet through their mobile-optimized sites because they’re effectively free.

How are tech giants using zero-rating today?

Facebook Zero is a mobile site that is “optimised for speed” and “free” when accessed via telecom carriers who have struck a deal with Facebook to zero-rate its mobile site. In 2013, Mark Zuckerberg announced the launch of Internet.org, a broader initiative to connect the two-thirds of the people in the world who don’t currently have access to the Internet’s “knowledge economy.” Zero-rating is central to this strategy.

Google Free Zone provides zero-rated traffic access to Google’s search engine, Gmail webmail and the Google+ social network to customers of participating operators in countries that to-date include Sri Lanka, Kenya and Nigeria, to name a few. Users of mobile carrier partners can access Gmail messages, direct links from Google search results and engage with Google+ free of charge. And while Google and its partners have released basic information about how the program functions, for such a seemingly global and potentially game-changing project, publicly available information on expansion plans is still relatively limited.

Other companies like Twitter and FourSquare have tried zero-rating data, but these programs seem to be more limited in scope.

So now that people can access these websites and content for free from their phones, how does this dictate the way they use the Internet? That leads me to the second strategy I’d like you to know about, especially if you’ve been following the the debate about Net Neutrality, the idea that all internet data should be treated equally.

Strategy 2: “Consolidated use.” For those of us old enough to remember dial-up Internet (cue modem tonal music extraordinaire), we think back to Internet providers like Prodigy and then AOL. Back in the good-ol’ days, Prodigy, AOL and a few others were the Internet. And that’s exactly the point. Now, if I told you that Facebook’s strategy was to become the next Prodigy or AOL, you’d take me for crazy and stop reading right now. But, to a certain degree, that’s exactly what they’re trying to do. In places where zero-rating for Facebook or Google is the key to accessing the Internet, they are the Internet. And people have started to do every normal activity we would do on the Internet through those two portals because it costs them zero. This is consolidated use. If Facebook is my free pass to the Internet, I’m going to try to do every activity possible via Facebook so that it’s free. I’m going to search for jobs, coordinate remittances from family members, chat with friends and conduct other revenue-generating activities like marketing my small business all without ever leaving the Facebook or Google mobile sites.

So, what’s in it for the tech giants? They want first-mover advantage to accessing billions of new potential users (and eyeballs to view ads) who are just coming online. For many of these billions of people, their first — and potentially only — Internet access will be on a mobile phone. These newcomers are still establishing their digital habits, preferred search platforms, and social networks. Increasing both subscriber and user numbers in these regions is critical to these companies positioning themselves for future opportunities in advertising revenue. And while neither company is openly pushing an advertising-first agenda today, it is clear that aggregating data about these previously untapped users is essential to refine local search results and ultimately effectively market ads.

The aforementioned business benefits seem clear (and make rational financial sense for these companies!) However, it is interesting to note that both Facebook and Google have alluded to these programs with somewhat altruistic goals to “connect the world” and lower barriers to Internet access so that everyone can be part of the global knowledge economy. Why must they feel the need to, at least publicly, choose altruism over financial gain? I see nothing wrong with market forces as the impetus to bring together tech companies and telecom providers to increase global connectivity. I also see huge opportunities to meet their stated altruistic goals in tandem with financial gain.

One example of using the zero-rating model for improving livelihoods is Wikipedia Zero, Wikimedia Foundation’s strategy to reduce barriers to accessing knowledge for all. According to the Wikimedia Foundation, one of the largest barriers to accessing free knowledge globally is the cost of data usage. And on-demand knowledge can be critical to saving lives, returning higher crop yields, or enabling business negotiations between people who don’t speak the same language. Imagine trying to answer questions like: “My child has diarrhea, what can I do?” or “Should I harvest my crop today or wait until next week?” without the immediacy of information available on the Internet.

Still, access to the Internet is just the first step (“Step zero”, if I may). I’d like to see these tech giants take a more active role and a next step, “Step 1”, to realize the full potential of bringing the power of the “knowledge economy” to the next 5 billion. One potential is for Facebook and Google to share the fruits of their telecom negotiating labor with public service organizations, locally-owned small businesses, or educational institutions. Alone, these organizations are not large enough to broker deals with the telcos. They could expand their impact by partnering to deliver zero-rated content to communities. Alternatively, beneficial features like professional profile uploading for job seekers, could be built into mobile applications that we know are driving consolidated use habits, including employment searching. Perhaps these things are already being done, but I could not find evidence of them.

The race to zero has the potential to be so much more that just a numbers game. I challenge the tech giants to make it so.

Continue the conversation with me @alicialev on Twitter or leave a comment.