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Zero-Rating Opportunities in B2B SaaS

Zero-Rating Opportunities In B2B SaaS

We recently discussed net neutrality’s impact on innovation and AT&T’s acquisition of AppNexus. Today we are going to examine zero-rating opportunities in B2B SaaS. Zero-rating allows a user of an app to freely use the content without it counting towards their data cap. For example, if Facebook is zero-rated, a user can use it to their hearts content and it won’t count towards their data limit. There have been a few programs in the U.S. that promote zero-rating including T-Mobile’s Binge-On and Verizon’s FreeBee Data. Companies such as Wikipedia, Google, Facebook, Uber, Netflix and Spotify use zero-rating related technologies today. In fact, millions of Facebook users have no clue they’re using the internet due to zero-rating programs across the globe.

Deep Packet Inspection (DPI) is the underlying technology that allows zero-rating to work. In simple words, DPI is able to examine and track network traffic. Another method, which works with DPI, creates an overlay network. This method would make it easier for a network to detect traffic because the traffic would be sent through a proxy. So far we have seen B2B companies use DPI technology for network security and network traffic optimization purposes.

Below we lay out three areas in which we see zero-rating opportunities in B2B SaaS.

1. Applying Machine Learning And AI Algorithms On Application Traffic And User Data. When mobile carriers zero-rate an app, there is much better data available from users. This data can be invaluable for both mobile carriers and any company with a mobile app. By applying algorithms to this data, businesses turn their user information into actionable insights. For example, businesses would be able to know when the right time is to connect with users, how to personalize customer experiences, or even be prepared to improve network performance at times in which they have seen more consumers.

2. Enabling Companies To Better Market And Improve Their Products And Services. Similar to how many companies use discounts to reach more customers, zero-rating is a way mobile app companies can do the same. As mentioned above, zero-rating allows access to better user data. From this, companies can create better marketing campaigns, target users or locations that use the application less frequently, and have the ability to see how well their new app features are doing. On the other hand, mobile service providers can use the data to see which apps customers are spending the most time on. With this information, mobile service providers can improve their services by then creating more personalized user experiences and better data packages, thereby improving customer retention and loyalty.

3. Making It Easier For Telecom Companies To Zero-Rate Mobile Apps. One of our founders, Yiannis Yiakoumis, mentioned in this blog post that an issue with zero-rating is that it can be time consuming for telecom companies to add mobile apps to their zero-rating program. With access to analyzed data from users, businesses can use this to more easily partner with telecom companies for their mobile campaigns as they now have facts to back their claims. Allowing more mobile apps to be zero-rated would not only help businesses reach more customers, but also give telecom companies the ability to create data plans in which users can zero-rate the services they like.

The ethical issues behind the use of zero-rating are obvious – there was a lot of backlash behind T-Mobile’s zero-rating programs and understandably so. In the wake of the U.S. government unraveling net neutrality and the merger between Time Warner Cable and AT&T, zero-rating can be used as tactic to stop competition and disrupt innovation on the B2C front. However, one of the issues with how zero-rating is used is that there is no user-specific choice and that can hurt startups because obviously a mobile service provider would rather zero-rate a Spotify versus a smaller company in the same market. (You can read more about this in Yiannis Yiakoumis’ blog post.)

It is important to note that the zero-rating plans in the U.S. ended in favor of unlimited data plans. However, zero-rating is very prevalent in other parts of the world. There are a bunch of packages in Europe provided by mobile carriers – such as Vodafone – that offer a list of all-you-can-use applications for a monthly subscription. We definitely see a market for companies to use zero-rating and its underlying technology to reach more customers and improve their product. Obviously there are other areas in which there exists zero-rating opportunities in B2B SaaS, but these are ones where we see applications. 

If you liked “Zero-Rating Opportunities in B2B SaaS” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Special thanks to Nour Jedidi for his contribution and work on this post.

Michael Brown
Michael Brown
Michael is a Founder & Managing Partner at Bowery Capital based in New York. Prior to Bowery Capital, Brown was a Co-Founder and General Partner at AOL Ventures. Before AOL Ventures, Brown worked for the investment arm of Richard Branson’s Virgin Group. He began his career at Morgan Stanley as an equity research analyst. Outside of his professional life, Brown serves on the Board of Directors of the National Forest Foundation and the Columbia College Alumni Association. He holds a B.A. from Columbia University.