The Federal Communications Commission voted to repeal net neutrality on Thursday, an issue that Scott Latham — CEO of Philadelphia-based e-commerce company Flagship — said is largely being ignored by the retail industry.
As analysts anticipated, the FCC repealed net neutrality in a 3-2 vote, with all Republican appointees voting in favor and all Democratic appointees voting against disbanding it. The repeal effectively dismantles existing protocols that enforce equality in internet accessibility, significantly impacting e-commerce and the way consumers shop online.
Latham, who started a petition on Tuesday in support of protecting net neutrality, said the industry’s ambivalence is a reflection of an American populace that remains largely uninformed on the issue. This is, in part, due to its complexity: According to Google data, “What is net neutrality?” was the fifth most-searched subject term in 2017. Compounding the nonchalance is the timing of the FCC’s ruling, which came in the middle of a particularly fraught news cycle.
“We’ve got so much happening, with natural disasters, terrorism, the Trump presidency and [Alabama Senator] Roy Moore. This is not getting the spotlight,” said Doug Baldasare, CEO of ChargeItSpot, a company that provides phone charging stations for brick-and-mortar stores.
We took a closer look at what the ruling means for retail.
Can we start with the basics? What exactly is net neutrality?
Net neutrality is a policy that ensures an equal, democratic system for browsing the internet, which has been enforced since the internet was commercialized in 1995. It creates an even playing field for sharing and searching information, meaning that internet service providers (or ISPs) like AT&T, Comcast and Verizon are prohibited from blocking websites or altering loading times in an attempt to charge extra money for access.
What will the ruling determine?
The intent of the FCC vote was to determine the amount of control ISPs have over internet accessibility. Now that net neutrality is repealed, ISPs will be able to charge for varying levels of internet speed and access, similar to cable television providers. In turn, the providers will be able to block sites as they see fit and change the way online content is delivered to users conducting internet searches. Ultimately, ISPs will change the way users identify and access online content.
“This is a really complicated issue, and I don’t think anyone fully understands the consequences of it,” Latham said. “But it’s a much bigger issue that people realize. In terms of censorship, it impacts our ability to have genuine conversations, if they can be altered and shifted in a way that prioritizes what [internet service providers] see fit.”
Sounds like a complete overhaul of the internet as we know it. How will retailers be impacted?
The loss of net neutrality will disproportionately affect smaller, independent brands, according to Latham. As a result of ISPs requiring companies and website owners to pay fees for better service and faster speeds, those with less money to spend will have a hard time keeping up.“Net neutrality is the level playing field that allows small businesses to compete,” he said. “Getting rid of it would be a death blow to innovation.”
But aren’t startups already struggling to compete for web traffic anyway? Why does this make such a difference?
Startups are already at a disadvantage, due to lack of brand awareness, magnified by limited funds to afford search engine optimization tools, like Google keywords, and other marketing efforts. The loss of net neutrality just makes it that much more challenging for them to reach consumers and rank higher in internet searches, creating additional hurdles, while already fighting an uphill battle. For example: If a well-funded startup brand wants to spend a lot on raising brand awareness through big ad campaigns, it will have to spend even more to ensure that, once those new customers arrive on the site, it will perform on the level of high customer expectations.
So we’ll see fewer e-commerce startups?
It’s likely. Baldasare said, ultimately, this will be contingent on how much ISPs charge for coverage. If they enact hefty service fees for the highest-performing internet, costs may be unattainable for early-stage companies strapped for cash. As a result, the sites of early-stage companies may run slower for consumers, discouraging sales, repeat visits and retention.
“Think about companies like Casper. They got their start on the web — but had they started that business in an environment where they had to pay massive fees, they may not have gotten off the ground,” he said.
What about large retailers?
Just like ISPs, net neutrality is mostly advantageous to them. With a higher barrier to entry for e-commerce competitors, there will inherently be less competition and thus more opportunity for big brands to profit. It may also lead to consolidation in the market, accelerating the ability for established brands like Amazon and Walmart to continue to acquire and swallow up fledgling companies.
Without the resources to pay ISPs for better service for consumers, small companies may have to seek out the large-scale retail partners they had tried to avoid.
So can’t these smaller companies just solve their problems by teaming with big retailers? Isn’t the direct-to-consumer market already fairly saturated?
Ultimately, yes, but it threatens the autonomy of direct-to-consumer companies, many of which have excelled through direct access to consumers, and the ability to act nimbly and independently. In the long run, it will likely slow the growth of direct-to-consumer brands, which have proliferated in recent years.
Small businesses seem to be getting the short end of the stick. What are they doing to fight this?
Not a lot. Various requests to brands to discuss their stance on the ruling for this story went unanswered, and Latham is one few retail executives speaking out to protect net neutrality in the industry. Within 15 hours of sharing the petition on Tuesday, it had 4,000 signatures. However, Latham’s attempts to persuade bigger brands like Zara, Target, H&M and Walmart to act as allies were unsuccessful.
What does all of this mean for consumers?
Consumers will experience inconsistent internet speeds and loading times while shopping online, as well as filters that prioritize the companies shelling out more money to ISPs. As a result, the ability for consumers to discover newer brands will decline and online shoppers may abandon certain sites altogether in favor of those with better user experience.
“It will be painful for people to shift their behavior. You’ll see frustration from consumers, as they have to now decide which sites to frequent and whether to buy the products,” Baldasare said.
How will they be able to tell the difference from a bad Wi-Fi connection?
There are still several unknowns about how the loss of net neutrality will work in practice, but it could impact messaging and marketing for brands. Companies with higher performing internet speeds may begin including a special mark or stamp on their site to encourage people to visit, similar to a verification check mark on social media platforms like Twitter.
This article has been updated to reflect the results of the FCC vote on Thursday afternoon.