This week Facebook has launched Facebook Zero, a version of Facebook’s website that is optimized for mobile phones. There are already custom applications available for accesing Facebook from your iPhone, BlackBerry or Android device but those are limited to smartphones only. Users that don’t have a smartphone can now use the Facebook Zero light-weight website that can be viewed on nearly every mobile phone by simply opening the site 0.facebook.com.

The feature of Facebook Zero that will revolutionize the mobile industry: users in many countries don’t have to pay for any data traffic on their mobile phone when they use Facebook Zero.

No mobile data charges when using Facebook Zero

Facebook Zero brings access to Facebook for millions of people in the world for free. (The exception is for viewing photos). And while there are some developed countries on the list as well, most of the countries are in emerging markets which opens up a huge base of potential users for Facebook. Here is the list of countries and carriers that will offer Facebook Zero for free.

So who is going to pay the bills?

Instead of having customers pay for the service, Facebook will be paying carriers for the data traffic. Yes, the content provider will pay the service provider so user can access it for free. This has never happened in the mobile and telecommunications industry before.

This is a revolution because the mobile and telecommunication industry wants such a business model already for a long time. The increasing web-usage and web-traffic through websites like YouTube poses a problem for carriers: They have to increase bandwidth but cannot charge users more. So they would prefer to charge Google/YouTube and other content provider instead while at the same time ensuring that users will have the best viewing experience with YouTube and not with other sites (who don’t pay the service provider).

This is against the principles of net neutrality that states that service provider cannot impose restrictions on content, sites or platforms or degrade traffic. The topic of net neutrality is exactly the reason why content and service providers have not been able to implement such a strategy and the Facebook Zero experiment will be an interesting case study in this industry.

A brilliant strategy, a risky experiment or the end of net neutrality?

I don’t want to argue for or against net neutrality here, one question remains: Is Facebook Zero a brilliant strategic move or a risky experiment that will put more pressure on Facebook and its policies?

My opinion is that Facebook Zero, despite just being announced this week, deserves to be a prime case study for business model innovation and reframing existing industry assumptions. Either it will be a success and others will follow or it will fail and there are many lessons to be learned.

Two objectives have already been achieved with Facebook Zero:

• Facebook Zero will give access to Facebook to millions of users in emerging markets thus contributing to Facebook’s goals of user acquisition.
• The selection of emerging markets, besides the untapped user base, offers an opportunity to experiment with a radically new business model while being “off the radar” of net neutrality advocates and observers in developed markets.

How this experiment will work out – from a business perspective as well as from a net neutrality perspective – remains to be seen, but it is certainly an interesting experiment to watch.

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Not just trendwatching.com observed it, also Wired magazine dives fully into this trend with their special report titled “Free! Why $0.00 Is the Future of Business“. While the report at trendwatching.com is full of examples, this article in Wired analyzes a few case studies with more detail.

Thanks to Gillette, the idea that you can make money by giving something away is no longer radical. But until recently, practically everything “free” was really just the result of what economists would call a cross-subsidy: You’d get one thing free if you bought another, or you’d get a product free only if you paid for a service.

Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies — the shifting of costs from one product to another — but on the fact that the cost of products themselves is falling fast. It’s as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely. (Shaving cream?)

Wired also included an analysis of the countless business models leveraging the priceless economy and came up with six broad categories:

Freemium: What’s free: Web software and services, some content. Free to whom: users of the basic version.

Advertising: What’s free: content, services, software, and more. Free to whom: everyone.

Cross-subsidies: What’s free: any product that entices you to pay for something else. Free to whom: everyone willing to pay eventually, one way or another.

Zero marginal cost: What’s free: things that can be distributed without an appreciable cost to anyone. Free to whom: everyone.

Labor exchange: What’s free: Web sites and services. Free to whom: all users, since the act of using these sites and services actually creates something of value.

Gift economy: What’s free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone.

Read the full article here.

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Recently someone showed me a flowchart that tried to explain a new business model for the telecommunications industry. The many different companies involved and the complexity of money flows required quite some time of explaining and discussing until I was finally able to understand the idea.

My opinion on business models: Figure out a way to provide value to someone then they will be willing to pay for it. It helps to keep in mind that your future customers don’t necessarily need to be the users of your product or service. But this is as complicated as it gets. The lower the number of actors the higher the probability of success.

I stumbled on a comment on the EarlyStageVC blog, which summarizes the importance of simplicity of business models (in the context of entrepreneurship and Venture Capital:

“When a VC asks “What is your business model?” He’s really asking “How are you going to make money?” That’s what a business model is.

Simplicity is important. It reveals how well an entrepreneur understands his business. If you understand it well you can explain it simply. Most often it can be simplified. If it can’t then probably the entrepreneur doesn’t yet understand how he/she is going to make money. That’s where the VC works with the entrepreneur to figure it out. So the question is a litmus test in disguise.”

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