What Net Neutrality’s Repeal Means to E-Commerce SMBs

Small and mid-sized e-commerce businesses are likely to be hit hard by the United States Federal Communications Commission’s repeal of Net neutrality earlier this month.

The move will let Internet service providers block and manipulate Internet usage and discriminate against users at will, according to critics.

“Net neutrality repeal helps mostly affiliated businesses and larger enterprises at the expense of smaller firms, startups, innovators and entrepreneurs, remarked Common Cause Special Advisor Michael Copps, a former FCC commissioner.

“In e-commerce, I look for the bigger guys like Amazon and Google to dominate the market, along with ISP-affiliated businesses,” he told the E-Commerce Times. “Smaller guys will have to enter into pay-and-play agreements to make any headway.”

There are basically three Net neutrality models, suggested Ray Wang, principal analyst at Constellation Research, who described them using a highway metaphor:

• Regular freeway, no carpool/HOV lane or FasTrak congestion payment model. That’s a common understanding of Net neutrality, he said. “Everyone can access the Internet at the same speed, which can be really slow or really fast.”
• HOV lanes model. “One day we realize we need to give emergency vehicles and car poolers special rights, so we grant them special status over others for the public good. This is where we’re now making that argument,” said Wang.
• FasTrak congestion payment model. “We then create situations because we have HOV lanes that some people want to pay to bypass and others want to monetize,” he continued. “Suddenly, we find inequities out there.”

The U.S. is about to shift from first option toward the second and third options, Wang told the E-Commerce Times.

Net neutrality repeal “will make it harder for smaller players to afford faster access and compete with the big boys unless there are guardrails set by the government,” he noted. “The question is, who determines who gets to be in the HOV lane? And that’s fraught with political lobbying, special interests, folks with their narratives and agendas on who’s disenfranchised.”

This will mean “more money is required to lobby and pass a bill and deal with new regulations,” said Wang, “and more paperwork and bigger government, which is anathema to small business.”

The Once Bright Future of E-Commerce SMBs

SMBs have been betting big on e-commerce, suggests a nationwide U.S. survey DHL conducted this spring.

Twenty-five percent of the 14,000 respondents to the survey expected that Q1 e-commerce sales would increase by 7-100 percent over Q1 2017 figures.

The survey was conducted through a combination of direct outreach to DHL customers and a targeted Twitter poll, DHL spokesperson Stephanie Schiff told the E-Commerce Times.

The participating DHL customers reported having to ship more than 50 percent of orders as B2C orders received online. The non-customer participants were SMBs, but all did not have an e-commerce component. Public sector organizations and national or multinational companies were not included.

“SMBs tend to get a disproportionate amount of their sales through social media promotion,” and Net neutrality repeal “is likely to hit SMBs particularly hard,” said Rebecca Wettemann, VP of research at Nucleus Research.

“When ISPs decide what content gets priority, they decide which social channels get prioritized or blocked as well,” she told the E-Commerce Times.

Service providers “could just decide to charge different retailers different prices to deliver their content,” Wettemann said. “What’s the going rate for having the highest speed of service on Black Friday? There’s simply no way SMBs could compete in such a bidding war.”

SMBs Speak

“The worst-case scenario for a small business like mine basically goes like this: Comcast starts a wine club, and, when people search for one to join, instead of being shown Google’s results first, they’re shown Comcast’s option,” said Mark Aseltine, founder of Uncorked Ventures.

“Or Google’s results and sites like my own are slowed down so much that it’s easier to join Comcast’s wine club,” he told the E-Commerce Times. “There’s not much we can do in regard to [that], but we can work on speed and branding where people would find our site fast enough and ask for our site directly.”

The consequences in terms of the stifling of innovation and the lack of upside of starting an e-commerce business “are going to be huge,” Aseltine predicted.

On the other hand, “e-commerce stores have far more to worry about than the cost of their bandwidth slightly increasing,” observed Allen Walton, founder of Spy Guy.

“How about they focus on doubling or tripling their annual revenue instead of being up in arms over something that might not even affect them?” he suggested.

“I pay (US)$79 a month for unlimited bandwidth on Shopify. They could increase that price 10 times and I wouldn’t even care,” he told the E-Commerce Times.

The Net Neutrality Battlefield

Various public interest groups, including Free Press and Common Ground, have challenged the FCC’s repeal of Net neutrality in the U.S. Court of Appeals for the D.C. Circuit, which is expected to hear arguments in the case by the end of the year.

Thirty-six states have proposed or passed a resolution, bill or executive order supporting Net neutrality in one way or another, although some of those efforts have failed.

In California, Bill SB-822, the so-called “Net Neutrality Bill,” was killed off last week.

Some state legislators, led by Miguel Santiago, chairman of the state’s Communications and Conveyance Committee, eviscerated its text, leading to accusations of corruption.

“Net neutrality is a good thing,” Aseltine said. “Until I hear a good argument for why it isn’t, I’ll support an overturn of the repeal.”