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Should Verizon Data Caps Scare Mobile Startups and Advertisers?

Metered use and rich media may not mix

Is HTML 5 the answer? | Credit: David Paul Morris/Bloomberg via Getty Images

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The age of limitless data on your smartphone may be coming to an end. Earlier this year,  Verizon Wireless executive Nicola Palmer said that unlimited data plans are "unsustainable for the industry," and the carrier said this week that it would be moving to "a more usage based model in July." In other words, you can probably expect to see a data cap on every plan.

AT&T made a similar move a year ago, so Verizon isn't the first carrier to take this step. At the same time, developers and publishers seem eager to include (data-heavy) video and other media in their mobile apps, content, and ads. As data caps proliferate, will these companies have to rethink their plans?

Nickhil Jakatdar, co-founder and CEO of mobile startup Vuclip, said he has been debating this issue with other entrepreneurs for a while now. He noted that in emerging markets like India, data plans have always been limited, so in one sense U.S. carriers are just following the lead of other countries. That could be bad news for any mobile app or service hoping to make money through advertising, he argued.

"As a consumer, I am not going to be to happy if 5 percent of my data cap was used by ads," Jakatdar said.

You might think that Vuclip, which repackages video content for mobile consumption, faces similar challenges. But Jakatdar said Vuclip has always been aimed at emerging markets, so it built data caps into its business model. When a mobile carrier charges customers based on data consumption, rather than offering unlimited plans, then it actually wants people to use more data. If Vuclip increases data usage, the carriers make more money, and Vuclip takes a cut. Jakatdar predicted that as tiered data plans expand in the U.S., we'll see more mobile companies moving away from a purely ad-supported model and toward models where they partner with carriers on data or premium services.

Responding to an email, Michael Seibel, CEO of Justin.tv (which recently released a mobile video-sharing app called Socialcam), seemed less convinced that tiered data will lead to any big changes.

"I believe the mobile/social media trend is unstoppable," Seibel wrote. "Our users are in love with rich mobile Internet experiences, and I doubt that data plan tweaking will change that."

However, Justin.tv isn't ignoring the tiered data trend completely—Socialcam users who don't want to use their limited data to upload videos can wait until they're connected to a WiFi network.

And what about advertisers? Flite (formerly known as Widgetbox) offers a platform for creating what it calls cloud advertising. The company is exploring mobile ads, either as a component of its existing ads or as a new iPad-specific ad unit. Kelly Haxton, Flite's director of marketing, acknowledged that there's a chance limited data plans would make consumers want to avoid video ads and other rich media, which in turn might cause advertisers to turn away from those formats. The ongoing shift away from ads in Flash and toward HTML5 (which is "lighter" and uses less data) should make this less of a problem, Haxton said.

"I think [these plans] would have to have a really huge impact for marketers to really change their approach," she added.