Barack Obama’s proposal for an open Internet would be a victory for Netflix Inc. and its binge-watching users and may be a bigger boon for a generation of startups working on tools to connect cars, thermostats and even offshore oil rigs to the Web.
In urging the U.S. Federal Communications Commission to regulate broadband under the “strongest possible rules,” the president aligned himself with Netflix Inc., Reddit Inc., Yahoo! Inc. and others that contend equal transmission speeds are better for their customers. He proposed an explicit ban on Internet-service providers being able to demand extra payments for speedy delivery of content and data.
Startups as varied as smart-device maker Spark Labs, inventor Quirky and electric system Avi-on are working on chips and software that can do everything from entertain your dog with an Internet-connected toy to hooking up all the lighting in your home to the Web. The open Internet should be of interest to everyone in the U.S., as more and more devices are digitally connected for remote monitoring.
Having to pay for a priority lane for data over the Internet could stifle innovation in the budding industry for Web-connected devices, which research firm IDC expects to reach $3 trillion by 2020, up from $1.3 trillion this year.
“For startups, our advantage over a big company is we move fast,” Zach Supalla, chief executive officer of Spark Labs, said in an interview. “If something starts to slow us down, that’s where we start to lose our advantage over the bigger guys who obviously have a lot more resources.”
The tolls and extra fees favored by cable and wireless companies — though burdensome for established companies like Google Inc. (GOOGL) or Yahoo — would pose an even bigger financial challenge to newer companies dependent on venture capitalist cash to make payroll while developing new software and gadgets.
Proposals around fast lanes for the Internet would have “crushed product innovation in America,” said Barbara van Schewick, a law professor at Stanford University. “Those kinds of companies would have no chance in the world where they would have to pay to be competitive with everyone else.”
Consolidation in the cable industry has reduced the number of Internet providers in the U.S., and that’s heightened calls from public policy groups for a government-backed guarantee that all websites will be treated equally. Obama’s suggested route would have the FCC oversee broadband companies in the same way it regulates phone companies.
Cable and wireless-service providers responded swiftly and sharply, saying stricter rules for the Web would be bad for business. AT&T Inc. (T) went so far as to say that if the government chooses to regulate the Internet like a public utility, the company will challenge it legally.
Under Obama’s proposal, Internet providers wouldn’t be able to give superior service to content providers willing to pay for it. Netflix, Amazon.com Inc. or Google’s YouTube would be on equal footing in terms of how quickly and seamlessly their customers could download and stream, and startups without deep pockets could introduce new technologies with the same Internet accessas richer competitors.
“It has tremendous implications,” said Rebecca Lieb, an analyst at Atimeter Group. “When a company is placed in the slow lane or the fast lane — depending on whether they’re paying to play or not with the telcos — this is going to impact the user experience.”
In some cases tech companies unable to pay “could actually go belly-up,” Lieb said.
The growing movement to make devices and everyday items more intelligent typically depends on connecting to the Web to make the technology work. Data, video and images are uploaded online, and sometime analyzed by software, to perform tasks like changing a room’s temperature or alerting a homeowner about an intruder.
Established technology players are investing in building up their connected-device offerings. Intel Corp. (INTC) created an Internet of Things group, which makes chips for connected devices used in retail, industrial and smart home systems and brought it $530 million last quarter. Google bought digital thermostat company Nest Labs for $3.2 billion this year, which in turn bought in-home camera startup Dropcam Inc. for more than $500 million.
Fast lanes would affect anything that transmits a lot of data, like sending health-care images or security monitoring for a football stadium, said Chetan Sharma, an independent wireless analyst. The impact would especially be felt over the long haul as the average amount of data transmitted by a connected device grows 10-fold by 2017 and 2018, he said.
“If there’s a lot of traffic, the network can not handle this much signaling,” Sharma said. “Operators try to stay ahead of the signaling problems. But if in the future there’s a signaling peak — how will the operators treat it? Will they prioritize some?”