Sponsoring content: Motivation and pitfalls for content service providers

Abstract

With the popularity of bandwidth-intensive mobile applications and mobile devices, the data traffic is increasing fast nowadays. This poses huge burden to the Internet service providers (ISPs) to support such wireless data traffic as they need to invest on developing advance networks, e.g., 4G, or expending the capacity of the current networks in a much faster pace. One way to keep up financing such investment is to transfer the costs to the end users. There are studies on new payment models, e.g., time-dependent pricing. An alternative way is sponsored content. More specifically, the content service providers (CSPs) can sponsor the end users for the traffic of viewing their content. As an example, Google, with India ISPs, is currently sponsoring Gmail, Google+, etc. for its end users. Nevertheless, much is unknown about the impact of such strategy on the CSPs of different scales, more specifically, whether richer CSPs may harvest more advantage on the competitive edge. In this paper, we first analyze the interplay among CSPs, a monopolistic ISP and end users. We conclude: 1) small CSPs and large (or rich) CSPs all may have part incentive to sponsor content for its end users when the monopolistic ISP cannot discriminate the charging price of CSPs; and 2) otherwise, none of them has the incentive to adopt this strategy. We then study the effect of competition from short-run (i.e., market shares are fixed) and long-run (i.e., market shares are dynamic) perspectives in the market with one small CSP and one large CSP. We show that the small CSP (or large CSP) may benefit more from the adoption of sponsored content for the short-run (or long-run) competition.