Dear Mark, while you’re in Delhi, I’d like to share a small piece of India’s history: We called it, 'License Raj'

27th Oct 2015
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Dear Mark,

First, welcome back! This is great timing because you’ll be able to enjoy the festive season of Dusshera/Diwali in Delhi. There’s nothing quite like it. It’s also the season where in our mythology, many demons were slain. So I thought we might talk about what net-neutrality advocates view as a bit of a demon: Internet.org.

open_letter

Image credit "ShutterStock"

I’ve always been a great admirer of yours. You have built a hundred billion dollar business by turning one of the core principles of business on its head. Until Facebook’s arrival, people paid companies for products they made. But now, companies pay Facebook to reach people, who are now the product. That’s simply genius! However, with Internet.org, I might venture to say that you may be pushing this business model a bit too far.

The Internet today is a place where any company or person can provide a service which customers pay to access. Even consumers using free services have to pay an Internet bill to access them. However, if Internet.org succeeds, the model will change to the service provider paying you to access the consumer. Now you might argue that it lowers the cost of access for the consumer. Indeed, that’s what we all want for Erika and Esmeralda. But doing it through this model comes at a price. Bear with me for a moment while I indulge in some nostalgia.

You’ve probably never heard of the 'License Raj'. I wouldn’t blame you. Most of us don’t remember it that much either. It was a strange phase in India’s economic history where the government sought to plan and control the growth of industries. Conceived by Jawaharlal Nehru as a central pillar of India’s 'planned economy', this was a system of permits and licenses dispensed by government bodies to companies that would produce enough to meet the 'Five Year Plans'.

It made sense in theory. And given India’s fragile state post-Independence, it might even have worked for a while. But by the mid-1980s the system had grown unimaginably corrupt, stagnated India’s growth so much that we had a pejorative nickname for it ('Hindu rate of growth'), and drove the economy to a state of near-total collapse. In other words, the License Raj almost bankrupted India.

Please let that sink in for a moment.

This happened in large part because India’s market was not open: the government acted like a filter (and often like a wall). Only companies that had an approval from the government could provide services or sell products. Even if a young company had a superior offering, it couldn’t sell it to consumers unless the government allowed them to. Which in turn reduced competition by limiting the playing field to a chosen few that could pay their way to get in. Finally resulting in a decaying economy with low consumer choice, and a market that couldn’t sustain itself.[1]

Internet.org, while it sounds like a great business model in theory, could have similar unintended consequences.

A 'free zone' where users can only access certain websites will significantly influence or even reshape their behavior when it comes to accessing the Internet. If your mission succeeds, you will teach hundreds of millions of people that the Internet is a basic utility that you should not pay for.

By creating this incentive structure among consumers, a company will have no choice but to try and get on Internet.org, either by buying a spot or by paying tributes in some other way to access your platform. This will most likely mean reduced competition. And while that might not lead to something as dramatic as an economic collapse, it certainly runs against the grain of a free and open Internet.

If Internet.org succeeds, it will make it more difficult for young startups to reach the hundreds of millions of users you control access to. It’ll be more difficult because they’d have to both get approval and pay to reach a market.

At this point, I tend to get a little sentimental.

Don’t you remember how it was to have no money and yet go out into the world convincing everyone that you will make a dent in it? Don’t you remember worrying about how you’re going to pay your team’s salaries? Don’t you remember those moments when you were so filled with self-doubt and pressure, you thought, “Maybe this was a mistake. I’m not going to make it.”

Given Facebook’s meteoric and indeed historic rise, those memories might have dimmed a bit.

Well, they haven’t for me. I remember when I ran a startup, every single rupee I spent, stung. I ran my startup so frugally that I’m proud of it. My team was the best that a founder could ask for and yet they never asked for anything more than a great problem to work on. Over 13 months of running my industrial IoT startup, we built hardware and cloud-based software to monitor and control factory machinery. And we did in a budget of under Rs. 20 lakhs. Given that I had a few thousand rupees in my bank account when my startup failed, I know for a fact that if I had to pay a platform money to have access to my customers, I would have failed a lot sooner.

So here’s my humble appeal: If you want to make the Internet free for everyone by all means do it. Do it by paying a small part of their bill. Hell, why not provide 10Mb per month to every subscriber who doesn’t buy an Internet pack? Because let’s face it what else will they do on the Internet but log on to Facebook? You already account for 20% of all time spent online globally. If you keep improving your product and create some positive sentiment by essentially being a benevolent creator of access, that share will only go up. I know it’s seductive to think about going after 100% of the next two billion.

But when you do, be sure to remember the License Raj.

Wishing you a very happy Diwali,

Sahil


[1] The Indian Economic Crisis of 1991 was the result of a triple threat. First, License raj resulted in reduced competition leading to poor quality products that couldn’t compete in western market. Second, the USSR, our primary export buyer, disintegrated in 1991. Oil was our largest import and during the Gulf war in 1990 it became a lot more expensive. Finally, we had 4 Prime Ministers between 1989-91 which meant there was no one to fix the mess. Mix that Molotov Cocktail and voila: Crisis!

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)

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