Raj of the Web: How Facebook miscalculated India

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Companies love to talk about the "next billion" consumers who lurk out there in the world's teeming emerging markets, lacking smartphones and languishing unconnected to the Internet, just waiting for the right digital products and services to plug themselves into the global economy.

For Facebook Inc., which is banned in China along with other Western tech giants, the next billion has a fairly obvious geographic delineation: A whole lot of them can be found easily in India. The problem with chasing the next billion, though, is many of them can't be caught: Just ask Stephen Elop, the Canadian former chief executive officer of Nokia, who pledged to do exactly that, failed mightily and was soon fired.

In India, Facebook thought it had found a way around the perennial problem of selling stuff to people too poor to buy anything: It partnered with Reliance Communications, Indian billionaire Mukesh Ambani's telecom company, and offered a "Free Basics" Internet package with some websites for free – including Facebook, obviously. What could possibly be wrong with that? A lot, actually.

The Indian telecom regulator recently slapped a ban on Facebook's Free Basics package. It ruled that telecoms can not offer parts of the Web at different prices – although the regulator did stress that providers could go ahead and offer free service to the whole of the Internet if they wanted to. The ruling followed a bitter, protracted PR battle between Facebook and young, Web-savvy supporters of "net neutrality," a term that refers to an open, unrestricted Internet available to all.

The decision was effectively a shot across the bow of global new media corporations from the largest country in the democratic world, in an era where Facebook and Google have frequently mused about or pursued "free" Internet access schemes across Africa and other poor regions. And the shot was quite clear, saying: Our citizens are not silent "users" without any rights, waiting to be hoovered up and integrated into quarterly financial reports to cheer shareholders in an era of slowing growth at companies such as Facebook and Twitter.

Facebook, unsurprisingly, did not exactly jump forward to offer free access to the Internet to the millions of poor Indians it was professing to help. In fact, what Facebook did do was call India anti-colonialist, and whine that it was being treated unfairly. Wait, what? Yes, you heard that right. Facebook board member Marc Andreessen, the venture capitalist who co-founded Netscape, vented his frustration on Twitter in a remarkable bout of impolitesse that could only have come from a disconnected Silicon Valley billionaire.

"Anti-colonialism has been economically catastrophic for the Indian people for decades. Why stop now?" he tweeted, thus praising imperialism and comparing Facebook with the British Raj in less than 140 characters.

The reaction to Mr. Andreessen's offensive tweets was quick and loud, and included a public putdown from Mark Zuckerberg himself. The British Raj may have built some decent railways and institutions, but it was not exactly good for the economy: It turned India into a vassal state to fuel Britain's imperial ambitions and pushed India's subordinated economy into stagnation. It was only overturned at great cost, not just by Nehru and Gandhi, but by nationalist businessmen such as Jamsetji Tata, who built the world famous Taj Hotel, believed in the swadeshi movement of economic self-sufficiency and whose sons would go on to build the Tata Group conglomerate – which later bought Jaguar Land Rover and Tetley Tea.

Nikhil Pahwa, an Indian entrepreneur who took time out from running his business to lead a group united against Facebook's efforts in India, says he was obviously offended by Mr. Andreessen's comments. But he suggests this really wasn't about the colonization of India; it was about the colonization of the Internet – an attempt to create a sort of Raj of the Web, wherein some users are funnelled toward certain websites (because they're free) while silently being dissuaded from looking at other websites. Facebook, of course, would never tolerate, say, Verizon making it free for users to access Twitter over its U.S. wireless network but simultaneously making it more expensive to access Facebook. But Mr. Pahwa is also less concerned about Facebook than he is by the telecom carriers such as Reliance, who could have used the attractiveness of Facebook, combined with other free websites, to lure Indians into a so-called "walled garden" in which they would have access only to what carriers chose.

"One of the bigger problems we noticed was there was vertical integration – which meant that carriers could start their own services and charge nothing for them, while making access to the open Web more expensive," Mr. Pahwa says from Vancouver, where he was in town to give a talk as a TED Fellow. "Some partners benefit through association with carriers, and so the carriers now have the power to pick winners – and to discriminate against others."

Some may still think, as Facebook proclaimed, that providing free Internet – whatever the content – is better for the world's poor than having no Internet at all. But Mr. Pahwa says it was never about connecting the unconnected, but instead about luring India's millions of students with free access to Facebook. In the early days, he says, advertising was almost exclusively run in urban areas, not in rural India.

For him, the message was clear. "Hands off our Internet," he says proudly. But for companies, the message is also pretty clear, particularly given the fact that Facebook deployed huge resources to mobilize a campaign in India with dubious surveys and digital ads, which infuriated the regulator: Are you dressing up naked opportunism in the garb of 21st century digital philanthropy? In the modern, ever-connected world, that's probably bad for business.