Inside AT&T’s Sponsored Data program: How Aquto turns ads into megabytes

AT&T(s t) new Sponsored Data program has already become highly controversial even though it has yet to exempt the first megabyte of content from subscribers’ data plans. Sponsored data means internet companies can pay for their customers’ data charges when they’re consuming their content, and the ultimate danger of such a model is that companies that can afford to pay your data bills would dominate the mobile internet.

AT&T, however, has dismissed such a scenario. It maintains that Sponsored Data would produce services and billing models that would only benefit consumers, such as allowing enterprises to pay for their employees work-related data consumption or advertisers to show their ads without eating up consumers’ data plans. I got the opportunity to look into one of those models last week when I sat down with Susie Kim Riley, Aquto CEO and founder. Aquto is a mobile advertising and marketing startup that will be one of the first companies to pilot Sponsored Data.

Susie Kim Riley speaking at AT&T's Developer Summit at CES

Susie Kim Riley speaking at AT&T’s Developer Summit at CES

Using data as a loyalty program

I first profiled Aquto last summer when it launched what can only be described as the mobile data equivalent of a frequent flyer program. In exchange for viewing  its partners’ ads, downloading their apps or filling out their surveys, Aquto will award you free megabytes credited to your data cap.

Since launching with Vodafone(s vod) Portugal and Verizon’s(s vz)(s vod) prepaid network, Aquto has attracted about 50,000 customers to its rewards apps Kickbit. Those customers have racked up an average of 100 MB of free data, while some customers have earned 5 GBs of data in just a few months, according to Riley. But now the company is ready to launch the next phase of its marketing platform, which exempts its marketing partners’ content from data plan charges.

Aquto Kickbit

By sponsoring data, as well as awarding it, Aquto not only creates an incentive to participate in a promotion, but also removes all disincentives, Riley said. For instance, a movie studio could entice someone to view its new film trailer with both a 30-MB reward for seeing the preview to its end as well as a promise that the 40-MB stream won’t count against his or her data plan.

AT&T’s Sponsored Data program will help Aquto solve one the biggest problems facing marketers dealing in richer media beyond the display ad, Riley said. Many content companies, game studios and app developers won’t even advertise to consumers when they’re connected to cellular networks.

“They wait until they’re connected Wi-Fi,” Riley said. “Otherwise they know there’s no chance they’ll view their video ad or download their apps because they’ll drain their data plans.”

Can an inch stretch into a mile?

In Aquto’s case I see how Sponsored Data provides a direct consumer benefit. It prevents consumers from being forced to pay to be marketed to. But the bigger worry isn’t isolated advertising cases, but the potential of such a two-sided billing model to crown content kings.

If internet companies start paying the data charges on all their content – not just promotional campaigns – then they have a distinct advantage over companies that do not. Why use Snapchat if uploading Instagram(s fb) photos comes with no data penalties? Why use Vevo if all YouTube(s goog) ride over your phone toll-free?

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Riley, however, said she believes that those kind of scenarios won’t happen because the financial incentives aren’t there. While AT&T hasn’t released any info on the rates it’s charging businesses to sponsor data, Riley said they aren’t inexpensive. Companies like Aquto can use the programs for targeted campaigns, but no multimedia content provider could afford to pay blanket data charges for their content without fundamentally changing their business models.

“Yes, something like this could be abused,” Riley said. “But I don’t see think you’re going to see the Googles and the Facebooks of the world shelling out millions of dollars to push their content over networks for free.”

We’ll see. While Riley may be right that in its present for Sponsored Data is just a way of creating more nuanced and fair billing models. There are different types of data consumption — we can download data purely for own edification or we could download data at the behest of our employers or third-party advertisers – so why should all of those charges be reflected in the same bulk rates on a single bill?

But by changing the way data is billed for, AT&T also opens the door to a different kind of mobile internet. Instead of merely providing compensation, sponsored data could set up a tiered mobile internet in which big companies with deeper pockets can pay to exempt their traffic from consumers’ bills. That would leave smaller companies to fend for themselves. As Om Malik recently wrote that could slam the brakes on mobile innovation in this country.