We’re moving onto the Internet, but what sort of neighbourhood are we moving into?
It’s already happened. When you wake up, you check Facebook to scan what friends are up to and check out the news they posted as links. When you want to sell your iPod, you post a classified on Craigslist or Castanet. Before you go shopping you can now check Groupon quickly to see if anywhere’s cheap today. When you come back, you can now fire up Netflix to download a movie easily and quickly.
But as we leave retail slowly but surely—OpenFile.ca founder Wilf Dinnick recently opined that the reason there are still HMVs everywhere is because of long-term leases, not particularly great business plans—entrepreneurs in all fields are realizing how hard it is to make money on the internet.
Recently, an uproar started over the CRTC’s decision to allow usage-based billing which would charge overage fees based on heavy use, which is now up for review. This is an indicator of the landscape of Canada’s internet, where users, content producers, and telecom companies argue to determine what it’s all gonna look like.
More like winnovation
Innovation is the name of the game when it comes to the internet. LoadingReadyRun (LRR), a Victoria based internet video comedy website, progressed from their 2003 beginnings into a regular feature on the prominent web magazine The Escapist. LRR founder Graham Stark, a UVIC alum who is among other UVIC, UNBC, and VIU graduates, commented to the Phoenix on the financial challenges of operating online, saying “There is money on the internet; it’s very difficult to find.”
LRR found that it was hard to make money before being contracted with the Escapist. “Your options are sort of revenue sharing, which only works if you’re very successfull [or contracting], which is incredibly rare.” he said. “We started in 2003 and only in 2009 did we start actually being paid an amount that any of us could work full-time.”
Advertising was hard to secure after LRR had Google Adsense suspend their account. Adsense’s rules require a guarantee that users that click the ads buy the product. “Once you get shut down by Google Ads, you can never ever get back in,” he said. “It was kind of frustrating, because we never did anything wrong.”
Other ads were also problematic, as Stark said advertisers fall into two categories. “Ones that do quality ads, and they will only work with you if you..already have a certain amount of views”, he said. “Or there are sites who will put ads on whatever site, but the ads will be kind of crap, like the ads that flash and blink and tell you you qon a new laptop.”
Getting in business
LRR are one of a number of new sources for media on the internet, includng Netflix, a recent entrant into the Canadian market that allows you to download movies or TV shows on the internet.
This has lead to a problem for those in-person businesses trying to sell consumers their products. If people are using Netflix or iTunes for their movie or music needs, then they won’t need to go to theatres or stores as often. If they’re not around town as much as opposed to browsing Facebook, physical ads will lose effectiveness. It’s no surprise that these same companies have turned to the Internet for their answer.
“I think it is obvious to everyone that we are moving to a digital, network-based world. I think that provides great opportunities for both consumers (choice, price) and business (lower barriers to entry)” said Michael Geist, Canada Research Chair in Internet and E-commerce law for the University of Ottawa, in an interview with the Phoenix.
The internet exists, business-wise, in several forms. It functions as an enormous industry in and of itself: multi-billion dollar deals have been struck around what have become multi-billion dollar industries. In 2008, Microsoft bought a 1.6% share of Facebook for $240 million dollars; in turn, recent word suggests that both Facebook and Google are considering bids for Twitter estimated at around eight to ten billion dollars U.S.. Similar deals, such as Google’s $1.65 billion purchase of YouTube and reported $6 billion attempt to buy Groupon, are made not to make money off the megasites’ users themselves, but instead to feed off of the second type of internet business: advertisers. From dating websites to classifieds, most major internet sites are awash in advertising in the form of popups and sidebars. Interestingly, the biggest companies profit from the same system that earns user-generated content money: popular blogs or videos will get a cut of advertising done on their site. the reason that both enormous companies and random 19-year-old are making money from the same people in the same way is simple.
Finally, the other users of the internet are small to medium scale businesses which either provide an internet service (like the megasites do, but for a more specific niche) or use the web to middleman real-world content. The latter takes advantage of the internet as a tool to connect massive amounts of people. For example, sites like Ebay or Craigslist are the big-fish equivalent. As for the smaller businesses, coupon connecters like Groupon, Twongo, and MyShoppingGenie present users with local companies’ latest deals, middle-manning the traditional shopping exchange. Many of these services are locally-based and only serve a given community: textbook resale forum Studentreleaf, for example. Many of these providers, especially those based locally, are likely to have a present on social networking megasites, mainly Facebook and Twitter. The connection these sites offer to potential customers, and the two-way interaction that follows, is invaluable, and the main reason why contemporary businesses have no choice but to turn online simply to keep up.
“There are few key reasons worth noting that account for the shift online,” explains UBCO Sociology prof Chris Schneider. “First, it makes pure economic sense e.g., paper costs are eliminated; this also ties in directly with emergent and cost-cutting sustainability models of production which connects with various political, social, and cultural models of sustainability.
“Second, the move online seems to be almost entirely user directed. This is evident in fact that mainstream (and physical media) are now adopting social media platforms to reach out to their consumer base because this is where the consumer are congregating (this is the case with other institutions and organization, e.g. the BC RCMP has a Twitter page).”
User-centric internet functions like the download of videos, games, and music, are regulated by what’s called a bandwidth cap. This is put into place by the large companies who charge for Internet usage (Bell, Rogers, etc) in order to ease the toll on their networks and optimize the service they can provide to everyone wanting to get onto the internet. Should you, the consumer, abuse the relationship you have with the beast and utilize its power beyond the cap set in place, you are charged more money. This is known as usage-based billing, and began with Bell and Rogers around the year 2006.
Usage-based billing has led Canada into business conflict. Smaller internet providers that buy their bandwidth through the bigger companies (Primus is a great example, as is TekSavvy) offer unlimited Internet access. This dangerous relationship with the monster of the new millennium has come at a great boon to people like students, who wish to watch movies or play games online, rather than at theatres or on consoles. To put it into perspective, the proposed cap is about 25 gigabytes a month. Someone who had that cap who downloaded a quality movie to watch on his PC would likely hit four or five gigabytes, or one fifth of his cap for the month.
The idea behind usage-based billing is relatively simple—that users who use more of the internet should pay more for it. However, the market has discouraged it until recently. While the larger ISPs owned by telecommunication companies (telecoms) like Rogers, Bell, and Telus have always been able to sell based on usage, smaller local ISPs that buy wholesale access to the internet were able to charge unlimited plans.
In October 2010, Bell requested in that the CRTC allow it to impose a usage cap of 25 gigabytes (GB) per month on the customers of an Ontario/Quebec based ISP named Teksavvy, which offered 250 GB a month for $31.95 compared to plans like Rogers’ Lite Internet, which, according to the CBC, offers 15 GB per month at $35.95. On January 25th, the CRTC ruled that companies could, but wholesale customers would have to get a 15% discount from retail ones.
This unleashed a torrent of dissent on the internet spurred on by OpenMedia.ca, a lobbying organization who aims for a more open and affordable internet. “The CRTC has once again left the wolves in charge of the henhouse,” said Steve Anderson, the organization’s national coordinator. In a press release, Anderson criticized the decision for not going far enough. “Now is the moment for forward-looking, visionary policymaking, not half-measures and convoluted compromises with the companies trying to kill the open Internet.”
LRR’s Stark pointed out the confusion the big companies are causing. “What confuses me about this whole thing is that the companies that own the big internet service providers…also own the tv stations. It really gives me the impression that they were going ‘holy crap, Netflix is going to be taking away our cable business, we need to crank up the rates for the internet’ which seems like the opposite of what they should be doing,” he said. “It seems like the companies even though they are providing the internet, they’re not embracing it, and that seems incredibly stupid and short-sighted of them.”
Much to the delight of internet-savvy people, the Federal Government essentially told the CRTC that their decision is unacceptable and must be reversed. This is an example of the effect of the Internet on our lives, that the government has intervened in a related business issue.
The CRTC have decided to review the decision, and more consultation will take place in the coming weeks.
Healing the Network
It’s true that the Internet itself is a revolutionary work of technology, and its presence or absence has a significant bearing on quality of life. Yet that does not mean we should write off qualms over service and regulation as just another First World Problem – it just means we need to keep perspective. The fact remains that the Internet will influence the direction of our society going into the future, and have a significant bearing on what jobs and industries will profit – or even exist. The government has argued that the Internet can stay unhindered, uncapped under the right circumstances, and that opens up financial and social implications.
The problem that arises is where the initially user-directed landscape of the internet becomes a field for conventional business interests. Businesses, desperate to stay relevant and successful, turn to the net because all the customers are there, despite the fact that many users retreat to the internet to avoid paying for content or sifting through advertisement-heavy media. Meanwhile, regulators and service providers struggle to gain a handle on the web and maintain control over how it is used and where it can progress (given the seemingly limitless, uncertain possibilities).
Schneider sees the structure as eventually being able to settle into a symbiotic, agreeable economic system. “I suspect that the three parties will coalesce online,” he says, “where the existent struggle between the three will erode and eventually dissolve entirely resulting in mutually compatible to-be-determined business model.”
Is a stable internet satisfying to all parties is on the horizon? Users, content producers, and telecoms will have to come to some sort of agreement to get the neighbourhood together.