international business
Facebook’s Internet.org Initiative: Serving the Bottom of the Pyramid?
Zuckerberg felt that the Internet.org initiative would generate a positive impact on the global population. “They’re going to use it to decide what kind of government they want. Get access to health care for the first time ever. Connect with family hundreds of miles away. Getting access to the Internet is a re- ally big deal.” But barriers to Internet connectivity were many, and Internet.org was geared to break the barriers (Exhibit III). Also, compelling findings were revealed in the study conducted on the impact of Internet access in the developing world. 21 (See Exhibit IV.)
Barriers to Internet Connectivity
• Devices are too expensive.
• Service plans are too expensive.
• There’s no mobile network to connect to.
• Content isn’t available in the local language.
• Awareness of the value of the Internet is limited.
• Availability of power sources is limited.
• Networks can’t support large amounts of data.
Exhibit IV
Impact of Internet Connectivity Across the Globe
Summary of health impacts of extending internet penetration by region
Africa Latin America Indian South and
East Asia
General health
(Lives saved) Nearly 1M 160,000 775,000 460,000
Child Mortality
(Infants saved) 130,000 6,000 85,000 25,000
HIV/AIDS
(Patients
live longer) 2.2M 130,000 200,000 160,000
Summary of economic impacts of extending internet penetration by region
Africa Latin America Indian South and
East Asia
Increase in the
rate of growth 92% 37% 110% 75%
of GDP
Increase in
annual GDP $450 $630 $500 $630
per capita
Additional jobs 44M 5M 65M 27M
Decrease in
extreme poverty -30% -13% -28% -16%
More so, Facebook focused its approach toward India because it was blocked in China. However, in India, the low penetration of the Internet and low average revenue per user (ARPU) did pose a challenge to Facebook. Zuckerberg made efforts to explore his options in India. Ultimately, he wanted to improve Facebook’s revenue and increase the number of Facebook users, which would increase its ARPU from the Asian region. 22 Internet and Mobile Association of India (IAMAI) and IMRB 23 International found that availability of regional language content in India would boost Internet growth by 24 percent in rural areas; Facebook executives claimed that India was a “brutally localized” 24 country. 25
Zuckerberg always framed his Internet.org initiative as a non- profit and humanitarian aid type of mission, but scathing remarks and criticisms were raised against his statement that connectivity was a basic human right. 26 Critics called his initiative venture humanitarianism and Facebook’s gateway drug. Even Bill Gates, Zuckerberg’s mentor, commented on this initiative, “Hmm, which is more important, connectivity or malaria vaccine? If you think connectivity is the key thing, that’s great. I don’t.” 27
All along, Zuckerberg had reiterated that Internet.org was not meant to make money immediately. “Traditional businesses would view people using your service that you don’t make money from as a cost.” 28 But he had wanted this initiative to become profitable in the long run. He himself acknowledged, “There are good examples of companies Coca-Cola is one that invested before there was a huge market in countries, and I think that ended up playing out to their benefit for decades to come. I do think something like that is likely to be true here. So even though there’s no clear path that we can see to where this is going to be a very profitable thing for us, I generally think if you do good things for people in the world, that that comes back and you benefit from it over time.” 29
Tim Worstall, a contributor in Fortune and a supporter of Facebook’s Internet.org initiative, said that connectivity had brought economic growth and cited the success story of sardine fishermen of Kerala, India, referring to the article by Robert Jensen, a development economist at Harvard University 30 (Exhibit V).
On the contrary, many view Internet.org as a pseudohu-manitarian effort and questioned its motives. 31 But defending the criticism, Guy Rosen, Internet.org Product Manager said that the initiative was meant to be benevolent and made a positive impact on career and educational opportunities for peoplewho were not previously connected in developing countries. He reiterated, “We’re here to build a program that covers more than Facebook so we can accelerate the pace at which people are connecting to the Internet which is 9% a year. We really want to make that happen faster.” 32
Exhibit V
Network Connectivity Supported Kerala
Fishermen’s Law of One Price
• As phone coverage spread between 1997 and 2000, fishermen started to buy phones and use them to call coastal markets while still at sea. (The area of coverage reaches 20 to 25 km off the coast.) Instead of selling their fish at beach auctions, the fishermen would call around to find the best price. By dividing the coast into three regions, Mr. Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35 percent as soon as coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study, coverage was available in all three regions. Waste had been eliminated, and the law of one price the idea that in efficient markets identical goods should cost the same had come into effect in the form of a single rate for sardines along the coast.
• This more efficient market benefited everyone. Fishermen’s profits rose by 8 percent on average, and consumer prices fell by 4 percent on average. Higher profits meant the phones typically paid for themselves within two months, and the benefits are enduring rather than one-off. All of this, says Mr. Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes.
The technological companies based in Silicon Valley that were earlier content with dominating the tech world had now ventured into operations outside their area of interests. They had promised promotion of international development through their app-fueled disruption activities. Called by critic’s venture humanitarianism in action, these companies made people believe that the tech industry would solve the problems of the developing world, and Internet.org was intended to give a few useful applications to its users with Facebook acting as its middleman. Another under- discussed strategy of Internet.org was its pay-as-you-app model that was followed in the Philippines, Paraguay, and Tanzania. In that model, different charges were levied for various apps. 33
Despite critics terming the initiative more profit driven than a beneficial one, Zuckerberg himself stated, “One of its goals is to show people why it’s rational and good for them to spend the limited money they have on the Internet.” 34 He defended the initiative, saying that the initiative was an “on-ramp to the Internet” and not a gateway drug as alleged by critics. 35
Internet.org’s on-ramp would bring in contents through Facebook alone and would influence the users in their access to entertainment and news. Also, it influenced them in their education, health, and banking activities. Zuckerberg also stated that the goal of the Internet.org initiative was to offer credit and identity infrastructure in developing countries “that is still nascent in many developing countries.” 36 It should be noted that Lenddo 37 was a lender operating in developing countries and would give credits to the users of social media sites by assessing the users’ activity and finding their credit worthiness. However, analysts warned that with limitations of their own, the social media sites would in turn increase the anxiety level of the site users. Also, Facebook was not the only entity to provide these services to developing countries. Users should bear in mind that Facebook was a for-profit organization whose interests were much different from those of an ordinary citizen. 38
Criticisms were also raised about the plans put in place in developing countries by organizations such as Facebook to promote their business interests. They lobbied and manipulated to bring in reforms such as privatization and liberalization to further their commercial interests in those countries. With long-term growth expected to come from the developing countries, Facebook played its cards well through Internet.org initiative. It emerged as a monopoly and obtained data to increase its revenue from advertisements. “Internet connectivity to all” had become a commodity for the technological companies and was disguised as a humanitarian activity. 39
Critics of Internet.org initiative also questioned Zuckerberg’s lofty vision of “connectivity is a human right” because it pro- vided free access for some basic contents while holding the robust content for a price. It was following the well-trodden path of technological companies that offered the bait of limited free usage to use to their advantage later. It was demonstrated by the World Bank that in the name of development many techno- logical companies made money through people who were at the bottom of the pyramid and, invariably, they became the losers. 40 As Adam Smith 41 pointed out, it was not the benevolence of the butcher or the baker to give supper to the needy; it was done to perpetuate their own self-interest. Also, it became disadvanta- geous to the people at the bottom of the pyramid, for it was that they lacked the opportunity and freedom to pursue their own interests that caused losses to the society at large. 42
Journalist and author EvgenyMorozov (Morozov) made scathing remarks about Zuckerberg’s positioning of Internet.org as a humanitarian mission of Facebook and not as a for-profit busi- ness expansion plan. Morozov was worried that it would expand Facebook’s reach, sell more of its advertisements, and squeeze other app developers. In addition, others not in the Facebook eco- system would be pressured to join the rest to use its apps. 43
Apart from that, in a price-sensitive developing market such as India, Internet.org tilted the scale in favor of free services that brought distortion in the neutral access space. The initiative forced the competitors to enter into revenue-sharing arrangements and gave excessive power to people who selected services for the Internet.org initiative. Net neutrality was forgotten; Internet.org made business sense for Facebook and not for India. 44
The altruistic propaganda of Internet.org had its own catch because it affected net neutrality and Internet freedom. People got access to limited sites and acted as a gatekeeper to their offered choice. In that process, poor people became hostage to freedom of accessing sites. They were also forced not to access other sites and networks 45 thereby creating a monopoly portal, ignoring net neutrality and controlled people in both the developing world and the developed ones. 46 Gigaom’s 47 DavidMeyer warned, “Zero-rating entrenches powerful monopolies, hurts competition and potentially slows down innovation.” 48 Critics voiced [the opinion] that any universal good would have its own drawbacks; hence, it was better to look for solutions to avoid any control imposed on what people could see and access. 49
Zuckerberg championed the cause of Internet connectivity for economic betterment, understanding the crucial market India presented for Facebook’s future growth opportunity. “A lot of people can afford to be on the Internet but they don’t under- stand why it would be valuable,” 50 opined Zuckerberg, and they needed to be given a free sample before they wanted to spend money online. However, India had its own challenges to be met, said a McKinsey report. “For India’s Internet user growth to be more inclusive, significant challenges—including the lack of basic infrastructure, low quality of coverage, uneven distribution of wealth, and lagging human capital development—will need to be overcome.” 51 To overcome the obstacles, solar-powered drones were to be deployed. Zuckerberg stated that it not only helped his business to grow but, in the process, gave millions of Indians access to the Internet and contributed to the country’s growth. He said, “India is just at the beginning. The benefits of connectivity here are going to be profound.” 52
That echoed the statement proclaimed management guru C. K. Prahalad (Prahalad) made about how access to Internet connectivity would help mine the “fortune at the bottom of the pyramid.” Many organizations tend to overlook this aspect because these markets offered low revenue potential while their operating expenses cost more. Prahalad wanted an entrepreneurial approach rather than a charity to elevate the poor and needy. He felt that, “If we stop thinking of the poor as victims or as a burden, and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.” 53 He also wanted multinational organizations to pursue partnerships with them to innovate and sustain growth. 54
Alibaba was successful in rural regions of China through its e-tailing approach, and a McKinsey study stated that, “E-tailing’s impact is more pronounced in China’s underdeveloped small and midsize cities. We found that while incomes in these urban areas are lower, their online shoppers spend al- most as much money online as do people in some larger, more prosperous cities—and also spend a larger portion of their disposable income online. For these shoppers, the utility of online purchasing may be higher, since they now have access to products and brands previously not available to them, in locations where many retailers have yet to establish beachheads.” 55 That clued organizations to mine the bottom of the pyramid for their fortunes from future growth and revenue. 56 As Prahalad reaffirmed, “Cases certainly can be found of large firms and multinational corporations (MNCs) that may have undermined the efforts of the poor to build their livelihoods, [but] the greatest harm they might have done to the poor is to ignore them altogether. When the poor at the BOP are treated as consumers, they can reap the benefits of respect, choice, and self-esteem and have an opportunity to climb out of the poverty trap. The problem of poverty must force us to innovate, not claim “rights to impose our solutions.” 57 Visualising the path ahead, Zuckerberg observed, “The mission is to make this world more open and connected. In terms of connected, we want to go from one billion connected to the next five billion connected. I don’t know how long that will take, and it might be a lot harder than the first billion, but that’s what we are focused on. That’s what Internet.org is all about. . . . We are also focused on making the economy work better. We built our business on ad products. When we are building product for businesses, we are not thinking only about making money, we are thinking about how can we help aspiring entrepreneurs create their companies, create jobs, how can we help e-commerce companies sell more.” 58 Ben Popper (Popper), business editor at The Verge, an online website, commented on the Internet.org initiative, “You could be generous and call this enlightened self-interest, but more likely, Internet.org is a canny business move dressed up to sound like charity. . . . ” A number of articles mistakenly referred to Internet.org as a nonprofit. It’s easy to see how they were confused. In the opening lines of his essay about the new project, Zuckerberg writes, “It may not actually be profitable for us to serve the next few billion people for a very long time, if ever.” 59 Popper also highlighted Zuckerberg’s clarification on this initiative, “We believe it’s possible to sustainably provide free access to basic Internet services in a way that enables everyone with a phone to get on the Internet and join the knowledge economy while also enabling the industry to continue growing profits.” 60 Popper summed up by saying, “Bringing Internet access to everyone is a noble goal for sure, but that’s not why Zuckerberg, as CEO of a public company, is pursuing it. He wants to make sure that when people in emerging markets like Africa, India, and Asia get their first smartphones and connect to the Internet, Facebook will be the one to greet them.” 61
Bolstering Facebook users and thus obtaining data from the users to serve ads was the implication of Facebook’s Internet.org initiative. Chris Smith 62 wrote in the article, “The Hidden Cost of Facebook’s Internet.org Project,” “Developers and online services will have to make sure they have apps ready to run inside Facebook to reach as many users as possible, especially users who may not want to pay for additional access outside of what Facebook will offer for free.” 63 Elaborating more, he said, “Imagine your water meter giving you free quick showers but charging you for a bath…. And this is the profit-driven assumption behind Internet.org’s alleged beneficence: Once it gets enough people to take its free digital showers, more users will reach into their pockets to take a digital bath.” 64 He cautioned, “Whenever Mark Zuckerberg says that ‘connectivity is a human right,’ as he put it in his Internet .org essay, you should think twice before agreeing. There is, after all, little joy in obtaining free access to an empty library, or browsing a bookstore with empty pockets—which is, in effect, what Internet.org offers, while holding out the promise of robust content, if users will pay, a few cents at a time, for the privilege.” 65 Not to be left behind, Google was also planning to connect the unconnected to the Internet. 66
Sheryl Sandberg (Sandberg), COO of Facebook, explained, on the future of Facebook, “If the first decade was starting the process of connecting the world, the next decade is helping connect the people who are not yet connected and watching what happens.” 67 She added, “When we’ve been accused of doing this for our own profit, the joke we have is, God, if we were trying to maximize profits, we have a long list of ad products to build! We’d have to work our way pretty far down that list before we got to this.” 68 Allaying the criticisms heaped on the initiative, Sandberg stated that people were missing the big picture and said, “No one is saying that get- ting the next group of people online doesn’t one day also help Facebook’s business. But if you were actually prioritizing helping Facebook’s business, boy do I have a lot of ad products that these engineers can build that we need in the market.” 69
Critics of Internet.org also warned that the initiative was a campaign of self-serving techno-colonialism and a zombie plague: World War Z(uckerberg) which was meant to enrich himself and others by expanding and consolidating Facebook’s dominance. It had empowered people by providing Internet access and disempowering them by making them into consumers and its marketing targets. 70
Nevertheless, the kids who were the likely beneficiaries of the initiative at a computer center in Chandauli, India, where Zuckerberg had made a visit, would have thought, “The global knowledge economy is leaving the station, and we want to get on board, and you’re sitting there wringing your hands because we have to look at a few ads? Come on, man. That’s some zeroth-world bull, right there” 71 opined Lev Grossman in the article, “The Man Who Wired the World,” which appeared in Time magazine. But so-called cyber imperialist Zuckerberg had made Facebook’s users pay through their attention and personal information. Apple’s CEO Tim Cook stated, “When an online service is free, you’re not the customer. You’re the product.” 72 However, some analysts felt that the initiative would be a win–win situation for both Facebook and its consumers in the developing countries because it would help the company improve its network penetration as well as the quality of life of its consumers. Internet.org would be self-sustaining because of the founders’ self-interest and their competitive nature and focus. Mixing up business and social cause is considerednormal, and organizations such as Facebook, with its experience and expertise, would crack down on tough problems to offer solutions to developing countries in net connectivity. The only solution offered by the critics of the initiative was that the public should to be ever vigilant and check their activities to see to that the beneficiaries were not trampled upon in perpetuating the self-interest of the companies involved in the initiative. 73 Margaret Coady, 74 nevertheless, accused the initiative of being “business dressed up like charity” and posed the question, “Does the proportion of selflessness to self-interest matter in the end?” 75
Question:
Discuss the impact of Internet.org on emerging economies.
