Why the fuss over “sponsored data”?

[Commentary] AT&T said it would begin letting content firms -- Google, ESPN, Netflix, Amazon, a new app, etc. -- pay for a portion of the mobile data used by consumers of this content. If a mobile user has a 2 GB plan but likes to watch lots of Yahoo! news video clips, which consume a lot of data, Yahoo! can now subsidize that user by paying for that data usage, which won’t count against the user’s data limit. Lots of people were surprised -- or “surprised” -- at the announcement and reacted violently. They charged AT&T with “double dipping,” imposing “taxes,” and of course the all-purpose net neutrality violation. But this new sponsored data program is typical of multisided markets where a platform provider offers value to two or more parties -- think magazines who charge both subscribers and advertisers.

What if magazines were barred from carrying advertisements? They’d have to make all their money from subscribers and thus (attempt to) charge much higher prices or change their business model. Consumers would lose, either through higher prices or less diversity of product offerings. And advertisers, deprived of an outlet to reach an audience, would lose. That’s what we call a lose-lose-lose proposition. Maybe sponsored data will take off. Maybe not. It’s clear, however, in the highly dynamic mobile Internet business, we should allow such voluntary experiments.