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Will the Net Neutrality Verdict Crush Startups?

02/14/2014 02:19 pm ET | Updated Apr 16, 2014

The recent net neutrality ruling has been circulating the Internet for a few weeks now, leaving Netflix's "House of Cards" fans and Internet geeks alike concerned with the sanctity of what was once the free Internet.

The issue was whether providers like Verizon should be allowed to vary the delivery of bandwidth and performance at their own discretion. The FCC already banned this ability for phone companies, classified as "common carriers." A ruling by the FCC in 2002 declared that broadband providers were not common carriers and not subject to the same regulation.

That means streaming sites like Netflix and Hulu could theoretically be charged a toll because they require more bandwidth than a news site (a cost that would trickle down to consumers), and consumers could be charged based on the types of sites they visit.

So far, we've taken for granted that bandwidth is available regardless of what we're trying to access. However, this new ruling means ISPs could decide to only provide high-speed access to the customers whose traffic, users, and content benefit them.

While many have speculated about what the repercussions of an Internet without net neutrality could be for big companies and consumers, few have considered the dramatic effect it could have on startups whose business models hinge on high-bandwidth content.

Net Neutrality Hits Wide and Deep

The FCC's ruling could affect a new startup trying to carve out market share alongside streaming video sites like Netflix. Many areas could be affected should ISPs decide to start charging more for certain types of usage.

Digital Marketing: The beauty of the Internet is that it essentially levels the playing field for small businesses by giving them the potential to reach audiences with low-cost marketing methods like online video, webinars, and podcasts. If customers have to pay more for high-bandwidth media, this could diminish the effectiveness of these channels.

VoIP Providers: Startups often use services like Skype and Vonage to keep operating costs down. However, as companies like AT&T enter the Internet business, they could block VoIP providers and force companies to pay for traditional phone services instead.

Content Marketing: Presently, content marketers' main concern is providing value and entertainment that resonates with their target audiences. In an ISP-controlled environment, will content need to fit the interests of the provider delivering the content?

A Class System

Although ISPs are unlikely to follow through with some of the more alarming possibilities, this does raise serious questions about the future online environment that businesses will be operating in. Unfortunately, if ISPs have the ability to make Internet access pay-for-play, it's inevitable that smaller businesses will be at a disadvantage. If the entrepreneurial community takes a hit, it will ultimately stifle innovation and growth within the business community as a whole.

"I think this is potentially devastating to our innovation economy," says Jason Mendelson, a partner at the Internet VC firm Foundry Group. "The entire Internet economy has been created based on equal access without the ability to price discriminate."

Think about it: What if Kickstarter couldn't afford the bandwidth to provide a high-quality user experience? The revolutionary crowdfunding platform wouldn't have made it past its first month.

Ben Buie, co-founder of the University of Colorado startup incubator Spark Boulder, says the younger generation of entrepreneurs is particularly concerned with ISPs' potential new power, citing the already high cost of text messaging and data plans. Buie says young innovators know these companies like to use monopoly pricing, which is the most effective way to throttle creativity and innovation.

While Verizon has stated it remains committed to an open Internet, tensions and concerns mount.

An Uncertain Future

Net neutrality's demise has sparked concern among both industry leaders and consumers, but the startup community may stand to lose the most.

Although petitions have been issued to both the White House and the FCC, it's hard to say what's next. Consumers and businesses wait to see just how much Internet providers will push their new boundaries without losing customers or making enemies. Only time will tell.