Being a Hotspot, Part 1

Being a Hotspot, Part 1

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Written By Eric Sandler

By Adam Stone

May 19, 2004

For free or not for free? That is the question that must be asked in the passage toward becoming a “hotspot,” a public terminal offering wireless Internet access.

As more laptop makers and other device manufactures make wireless capability a standard offering, consumer adoption of Wi-Fi access is gaining momentum. T-Mobile took an early lead in Starbucks Coffee shops, and now many retailers are looking to wireless Internet as a magnet for drawing new customers and also as a means of enhancing the existing customer experience.

But do you give it away for free or ask the customer to pay for access? Opinions run hot on both sides.

A sandwich man champions the case for free access. As president and CEO of restaurant chain Schlotzsky’s, John Wooley has led the effort to implement free Wi-Fi as a customer amenity. Wooley has said his free wireless access draws an additional 15,000 visits per restaurant per year. At an average $7 per customer visit, that is money in the bank, more than enough to offset the chain’s networking expenditures.

But it cannot last, says Leigh Fatzinger, business development manager with the Garrigan Lyman Group, an interactive services firm in Seattle. Fatzinger has long been an outspoken skeptic of free Wi-Fi.

“The business has to ask itself what is sustainable,” he said. “Look at the traffic projections of what you will have in the future. There will be greater music streaming, greater video streaming. Those services are being used more and more often. In the next couple of years even mobile phones will be shipped with Wi-Fi capability.”

It will take cash to support those needs, both in terms of network infrastructure and maintenance. Sooner or later, Fatzinger suggests, users will have to pay for the privilege.

Analysts meanwhile suggest that the issue is less an either/or and more situational.

“In certain circumstances you do want it to be free, for instance if it is going to be a quick sit-down browse of the Internet,” explained Ben Bajarin, an analyst at Creative Strategies. “But in a business circumstance where people check e-mail and surf the Internet, that is something people probably should pay for — and will pay for. If people see a value in what they are doing, either for school or business, that is something they will be willing to pay for.”

In deciding whether or not to charge, it is worthwhile first to ask whether the hotspot is indeed supposed to be a profit center.

The jury still is out on whether a solo hotspot can turn a profit, and many question whether it even should. When a coffee shop offers Wi-Fi access, some say, the most it can ever be is a nice amenity. If Wi-Fi turns into a profit center, then you are in the Wi-Fi business rather than the coffee shop business, and there’s a good chance you will not be able to do either one very well… or so the argument goes.

Others argue the opposite. They say that in order to run your coffee shop effectively, you would have to charge for Wi-Fi. Otherwise the shop would soon overflow with people seeking to surf the Web, with little or no interest in buying a mocha soy latte.

At the very least, one would suppose it would be necessary to charge a nominal fee in order to offset the cost of establishing and maintaining the Wi-Fi setup. In fact, with the price of hardware dropping daily, the physical hotspot apparatus can cost very little, in which case the only significant ongoing cost would be the broadband subscription underlying the connection.

The benefits, meanwhile, can be substantial — as shown in the Schlotzsky’s example. When properly promoted, a hotspot can draw in new clients or encourage existing clients to linger (and spend). It can help a retailer to stand out from the crowd, giving consumers a reason to choose A over B in a crowded marketplace.

In the long term, it will be the marketplace that decides the free-vs.-fee debate. Whatever decision individual retailers make today, the long-term convergence of cell phone and Wi-Fi connectivity, combined with the ubiquity of Wi-Fi capable devices, likely will drive the pricing structure in the marketplace over time.

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