KUHN CAPITAL Friday, December 15, 2017
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Wither Wi-Fi’s Business Model?

6/30

When we first caught the buzz over Starbucks and McDonalds installing Wi-Fi hotspots in their stores, like most people we were excited about the prospect. But unlike some others, we weren’t sure how one could make money doing so.

Here’s the facts: Wi-Fi is cheap to set up and fast, but it only covers a radius of about 250 feet. So users would either have to visit a specific hotspot regularly, or they’d have to find them easily wherever they go. Therefore, as a result, the independent Wi-Fi operator has to climb a huge wall of thousands of hotspots before hitting critical coverage mass.

This explains why Wi-Fi entrepreneurs have concentrated on attracting business travelers passing through hotels and airports. Such individuals are presumably less price sensitive than ordinary consumers, appreciate higher speed access, and are concentrated in these locations. But outside the bounds of these relatively few locations, what’s next? Cafes, RV parks, malls?

Compare this dilemma to cellular wireless coverage, measured in miles, not feet. While slower, at least it’s available and maintains connectivity even while you’re traveling.

The practical problem of convenient Wi-Fi access gets stickier when you realize that different vendors offer different subscription or usage plans. For instance, subscribing to Boingo or Wayport won’t help if you land in a T- Mobile space.

While the big telecom carriers initially reacted to freebie Wi-Fi hotspots as if they were daggers at the throat, they’re begun to grow comfortable with the idea that, instead of a threat, Wi-Fi could actually act as a sort of complementary network safety valve. That is, hotspots can ease traffic congestion for their slower wireless services, and they can offer a competitive distinction in a commodity-like business. As a result, Verizon is offering Wi-Fi access as a premium or bonus for its cellular wireless subscribers.

That still leaves the pure-play Wi-Fi network operators like Boingo and Wayport casting about for a way to make money. We doubt their stand-alone model is viable, but they may survive by inking cooperative deals with wireless carriers and with another type of connectivity vendor that has yet to appear on the Wi-Fi scene: the ISP. We’d jump at the chance to spend a bit more per month on our Earthlink subscription if it included access to a large number of hotspots.


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