Back in 2013, Facebook (NASDAQ:FB) CEO Mark Zuckerberg founded Internet.org, a partnership between Facebook and seven mobile companies to bring Internet access to users in developing countries by subsidizing their data plans. According to Facebook spokesperson Ana Brekalo, app developers do not pay or contribute to subsidies to be part of Internet.org.
This seems like a win-win situation for both Internet.org partners and mobile users in developing nations, but some critics consider it to be a violation of net neutrality rules. In India, telecom companies spent months rallying against Internet.org, claiming the service gave web-based apps like Facebook's WhatsApp and Microsoft's (NASDAQ: MSFT) Skype an unfair edge over their own phone-based apps, which consume paid data. That pressure convinced one of Facebook's Internet.org partners in India, travel site Cleartrip, to withdraw from the alliance.
Do these critics have a valid point about Facebook and net neutrality, or are they overreacting to a well-meaning effort to connect more users to the Internet?
The slippery definition of net neutrality
In February, the FCC ruled that ISPs couldn't throttle connections or offer paid fast lanes to companies. In an opinion piece in an Indian business newspaper, Zuckerberg pointed out that Internet.org "doesn't block or throttle any other services or create fast lanes."
In a Facebook post, Zuckerberg noted that the Internet.org alliance was open to all developers and web publishers. However, critics claim that Facebook is basically setting Internet.org up as a "gatekeeper" for delivering select apps to poorer users.
There are also other rules beyond the broad definition of net neutrality to consider. In the U.S., the FCC recently stated that sponsored data initiatives were an unacceptable form of "paid prioritization" -- which is arguably what Internet.org is doing with its subsidized "essential" services.
Redefining the Internet
Another point of contention is that Internet.org conflates the definition of the Internet with Facebook. In a recent article in the Hindustan Times, India's Save The Internet coalition called Internet.org an "ambitious project to confuse hundreds of millions of emerging market users into thinking that Facebook and the Internet are one and the same."
This is a noteworthy point, because a recent Geopoll survey found that 11% of Indonesians and 9% of Nigerians used Facebook, yet had no idea they were connected to the Internet. This supports the argument that Facebook's Internet.org is an attempt to redefine the Internet under its own banner in similar markets.
This also explains why Google has been trying to deliver Internet access to developing nations and remote areas with weather balloons and satellites since 2013. Facebook is adopting a similar strategy by testing out solar-powered Internet drones.
Facebook isn't the Internet
The difference between Facebook and the Internet is obvious to people who grew up with easy access to PCs, but it's not as evident to users in developing nations, who mainly use feature phones. On feature phones, Facebook and WhatsApp are often seen as services alongside text messaging and photos.
The problem with Internet.org is that it's powered by companies like Facebook, Microsoft, Samsung (OTC:SSNLF), and Opera Software. These companies all have something to gain from tethering users in developing markets to their ecosystems. For Facebook, it means guaranteed user growth and more eyeballs for its display ads. It also delivers more search users to Bing, and more browser users to Opera. Simply put, these companies aren't subsidizing user data plans as just a charitable act.
It's a classic Silicon Valley strategy. Microsoft previously bundled a free web browser and media player with Windows. Google offered Chrome OS and Android for free to OEMs, letting them take the overhead risks as it tethered over a billion users to its ecosystem. Now Facebook is taking its turn by offering a closed ecosystem of apps to mobile users in developing markets for "free."
What does this mean for Facebook investors?
Facebook's goals with Internet.org might not be entirely altruistic, but it's still a solid business strategy. Facebook's user growth is slowing down -- its monthly active users (MAUs) rose 13% year over year to 1.39 billion in 2014, down from 16% growth in 2013. Establishing a firm presence in developing markets with first-time Internet users is a great way to keep growing.
Facebook hit 100 million MAUs in Africa last September, and it had 112 million MAUs in India at the end of 2014. Those figures represent nearly half of all Internet users in both regions. If Facebook maintains a strong presence in those markets as they mature, it will translate into stronger user and ad revenue growth.
Editor's note: a previous version of this article incorrectly stated that Internet.org partners can deploy their apps on phones as long as they contribute to those subsidies.