The Wi-Fi Business Model — Is There One?

by Reads (6,523)

On a recent weekday I read three different articles with headlines that went something like this:

  • “McDonald’s to Offer Wi-Fi With Meal Purchase”
  • “T-Mobile to Make it Easier for Subscribers to Access Hotspots”
  • “AMD to Offer Free Wi-Fi Hotspots in Self-Marketing Move”

So in one case Wi-Fi is offered as a compliment to another purchase, another you out and out pay for wi-fi and in a third you’re subjected to company marketing in return for free wi-fi. Do any of these models make sense, or can any of them succeed?

The Mc-Wi-Fi Model — Wi-Fi as a Compliment to Another Purchase

In a recent article on CNet (http://news.com.com/2100-7351-5172630.html) an investigation was done into whether people were actually using the Wi-Fi service McDonald’s had launched in San Francisco.  The model McDonald’s is using involves giving restaurant patrons free wi-fi for a period of time with the purchase of certain meals, or simply charging for the wi-fi access if a person doesn’t want to buy food (would this be the wi-fi diet?).  According to observations by CNet staffers of a typical weekday lunchtime crowd, nobody in the restaurant was using the wi-fi.  Surprising?  Not really, a typical weekday lunchtime crowd in a downtown restaturant would be those that have a job and probably sit in front of a computer all day long able to check their email or the internet.  Why would they want to keep checking email or the web during a lunchtime trip to McDonald’s?

But I don’t believe the McDonald’s model is ultimately doomed, wi-fi in restaurants, especially fast-food restaurants, might have a place.  If you’re on a long trip down the interstate and want to stop off for a break, maybe buy a milkshake or soda, it would be pretty cool to be able to use a PDA or laptop to quickly check for email or the latest headlines on your favorite websites.  So if a particular restaurant that had wi-fi sat next to one that didn’t, you might indeed pull up to the one with the wi-fi if you know that with any purchase made in the restaurant they’ll give you a logon id to access the net for 30 minutes.

T-Mobile, CoMeta Networks, Boingo Hotspots and the Permanent Subscriber Model

T-Mobile, CoMeta Networks and Boingo are all companies that allow you to subscribe to their wi-fi hotspot service and then benefit by being able to use the hotspots in various locations across the country where they’re setup.  These locations vary between coffee shops, book shops or airports.  The locations are much more prevalent in big cities.  Generally, a monthly subscription runs in the price range of $20 – $30 per month depending on whether your subscription is bundled into other services or not.

Most people balk at this number.  $20 – $30 a month is a lot, it’s pretty standard to pay $45 a month for broadband access in your home.  Why would you want to pay over 50% of that amount for the privilege of being able to access the web while sitting drinking a coffee for a few minutes?  Generally I believe this model will fail unless prices drop for access.  I personally do use the T-Mobile service because I’m a complete geek and it fits my lifestyle, but I realize I’m a minority here and this model seems doomed to fail and will never gain many subscribers unless prices drop significantly. 

Furthermore, T-Mobile and others are targeting larger urban city areas.  On a recent night I was in New York City Starbucks location and signed onto the net with my T-Mobile login, but realized that there were about 5 other unsecured wi-fi networks available from residential and business locations nearby.  Sure enough, I could get a strong signal to at least two of them.  And so why would anybody that frequented that Starbucks ever want to pay for a single signup session or subscription fee service? 

I predict that in two years time there will be few companies making much if any profit off of subscriber based wi-fi hotspot contracts.  It’s got to be relatively cheap for companies to setup the actual network at a location, all it takes is a router and broadband connection, so to cover setup costs wouldn’t be too hard I imagine.  But the lack of demand for wi-fi while away from home and high costs currently being charged by hotspot companies is going to retard any large subscriber base from signing up.

AMD and Using Free Wi-Fi as a Marketing Gimmick

We all know about Intel and the Centrino marketing label.  It’s supposed to get us to associate Intel with mobility and wireless internet.  Advanced Micro Devices (AMD), Intel’s main rival, has no such association.  Until now.  AMD in the next few months will be using guerilla tactics to bring free wi-fi to a coffee shop location near you.  The cost to use this wi-fi?  Free.

So what’s AMD getting out of this?  AMD is signing agreements with such locations as independent coffee shops and restaurants to display an AMD logo prominently, and in return AMD will do the setup and maintenance of a wi-fi hotspot.  This marketing ploy by AMD is designed to:

a) make people associate wi-fi and wireless with AMD, just as people already associate Centrino and wireless with Intel

b) make people like AMD because a free service is being provided.

I already like AMD a whole lot more!  This model seems smart to me.  If I’m using a PDA or computer at a wi-fi hotspot then obviously I’m a consumer that enjoys and uses technology.  If I see an AMD logo, I later on will associate that logo and company name with my wireless experience.  I will also be happy with AMD for allowing me to use this free service, and yes I do believe in endorsing and purchasing from companies that make me happy!

And another question comes out of this, if you have a Starbucks with pay for wireless service available, but just down the block you have a more independent coffee shop with free wireless service at the cost of looking at an AMD logo, then which do you choose?  Assuming all coffeee is created equal (and in my opinion Starbucks coffee is too bitter so I’d go anywhere else first anyway!) and you would like to use wi-fi, you’d probably gravitate to the independent coffee shop and pay nothing for your internet access.  There’s nothing like killing a competitions business by offering the same service or product for absolutely free!

Wi-Fi Business Model Conclusion

In the end I believe, in any mass consumer market at least, the business model for wi-fi will make the most sense as a complimentary service to customers.  First and foremost I believe this because people just don’t care enough to pay $30 a month to be able to check email or surf the web from locations away from home in which you spend very little time.  I do however believe some people will be enticed to a location that offers free internet access.  I’ve seen this especially at coffee shops and locations close to college campuses.  So many students have laptops and PDAs these days and then many of them rely on the internet for research and communication.  Working or studying in a relaxing or non-isolated location such as a coffee stop or bookstore carries appeal for such groups of people, they can’t afford an extra $30 a month for extra internet fees but they will go to one location over another and spend $3 – $5 there instead of the other that doesn’t have free wi-fi.

The AMD model in which a company wishes to market itself by providing free wi-fi also works  Look for these free AMD wi-fi hotspots to pop-up over the next few months.  I think you’ll find you carry a positive association of free wi-fi with AMD if you ever use it!  Smart marketing.

And so in conclusion and stepping down off of my soapbox, wi-fi should be free to the masses, but used wisely it could be used deviously by companies to sway the masses in their favor!

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