By Jeff Goldman

February 14, 2008

It’s still early days for ad-supported Wi-Fi, and companies in the space are trying many different ways to make the concept work.

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It’s still early days for ad-supported Wi-Fi, and companies in the space are trying many different ways to make the concept work.

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There’s been a flood of news lately about advertising-supported Wi-Fi deployments, from JiWire allowing iPhone users to connect for free at its Ads for Access locations to FreeFi Networks’ addition of video-on-demand rentals to its free, ad-supported Wi-Fi network at Denver International Airport.

Still, the business model has yet to be proven.

Stan Schatt, vice president and research director at ABI Research, says companies in this space have their work cut out for them—particularly when providers like FON are offering low-priced access as an alternative.

“If you can get Wi-Fi for three dollars without any ads, does it make sense to put up with the irritation of advertising?” he asks.

In a white paper entitled Pay TV and the American Consumer, Schatt reports that a very low percentage of consumers expressed interest in receiving access to pay TV at a discount—or even for free—in return for watching ads. Pay TV may not be Wi-Fi, but Schatt says the principle is the same: most people have limited tolerance for advertising.

While there may well be a perfect business model under which ad-supported Wi-Fi will yet prove viable, Schatt says, the number of companies currently battling in the space serves as an indicator of how unproven the market is.

“People just aren’t sure what direction it’s going to take, and everybody’s trying to find traction with a slightly different business model,” he says.

Municipal support

One of those companies, of course, is MetroFi, which runs ad-supported Wi-Fi networks in cities from Concord, California to Portland, Oregon. Lou Pelosi, the company’s vice president of marketing, says MetroFi primarily uses Microsoft’s MSN SideGuide to deliver ads. Despite the need to download an application onto the user’s PC, Pelosi says the company likes SideGuide because it takes up a minimal amount of space in a vertical bar to the left or right of the browser, and because it contains a search box and a news feed in addition to advertisements.

Pelosi says it’s become clear to MetroFi that the only viable business model for municipal Wi-Fi deployments is a mixed-use arrangement under which the city serves as an anchor tenant, using the network for anything from city services to public safety alongside the free, ad-supported offering. Getting the city involved, Pelosi says, is key not only in providing crucial financial backing, but also in promoting the network to end users.

Video on demand

FreeFi Networks, with its deployment at Denver International Airport (DIA), is also looking for additional sources of revenue beyond advertising. The company recently announced a partnership with Disney-ABC Television to provide locally served video-on-demand rentals that can be downloaded via Wi-Fi in minutes by a traveler waiting to board a plane.

Company managing director Richard Bogen says it’s a perfect solution both for users and for the City of Denver, which runs the airport.

“For the City of Denver, it gives them a way of generating revenue not only from ad sales but also from the sale of video content—and from the user’s perspective, it gives them a nice little amenity in the airport,” he says.

FreeFi’s ads are served not only in the browser, but also in the form of a 30-second video that’s played prior to enabling access.

“The time that takes is far less than what it would take for the typical paid user to punch in a credit card number, get approved, and type in all their information,” notes Lawrence J. Laffer, the company’s executive director of sales and marketing.

Laffer says the result is a user experience that’s both streamlined and user-friendly—when DIA switched from $7.95-a-day paid access to FreeFi’s ad-supported offering, the airport saw an increase from about 600 daily connections to as many as 5,000.

“User acceptance is just extraordinarily high,” he says.

And airports, Laffer says, are perfect locations for his company’s business model.

“We know there’s high demand, and we know there’s low tolerance for paying,” he says.

Beyond laptops

JiWire CEO Kevin McKenzie also counts on high demand to make his company’s Ads for Access offering viable. JiWire now reaches about 8 million Wi-Fi users a month on 32 different networks including Boingo, Wayport, and others.

“It’s all about volume,” he says. “If we had 100,000 users, we’d have problems. You don’t get the attention of large advertisers like Charles Schwab and Sony and Microsoft and others without having millions of users that are potentially going to look at these ads.”

And the company’s recent announcement of support for the iPhone and similar devices, McKenzie says, will only increase that number.

“What’s going to happen when everyone has an iPod touch, when all digital cameras are Wi-Fi-enabled so people can upload photos through Wi-Fi as opposed to doing it at their PC?” he asks. “It’s these non-PC Wi-Fi devices, in my mind, that are really going to light this up and make it so it’s economical to offer an ad-based Wi-Fi model.”

Ad targeting

For HypeWifi [sic], though, it’s about quality rather than quantity. The Houston-based company uses an ad model in which the user is simply asked to respond to one question about an advertiser’s product upon authentication—and that’s it. The information from that response, along with anonymous demographic information that’s captured during their session, is then used to improve ad targeting on return visits.

And according to company CEO Tim Heckler, that’s what makes it work—it allows advertisers both to get valuable demographic information about their audience and to target their ads with unique precision. Tracking a user by MAC address, Heckler says, allows HypeWifi to offer that user increasingly targeted advertising on each visit.

“If they’re not answering the questions the way [the advertiser] would like, we can just cut off the advertisement and put another advertiser up instead,” he says. “That really allows you to get more bang for your buck.”

Heckler says it’s that kind of targeting that will ultimately make ad-supported Wi-Fi viable.

“It has to be done intelligently,” he says.

The value proposition

For Anchorfree COO Mark Smith, on the other hand, the way to make ad-supported Wi-Fi work is simply to give users a choice between paying for access and viewing ads.

“We typically like to demand complete transparency with the user,” he says. “If they don’t want to have an ad-supported online experience, I don’t think they should. They should have a choice: they should be able to pay their nine dollars to check their e-mail.”

And that’s a perfect solution, Smith says, for Anchorfree’s hotel clients: bandwidth hogs can pay the nine dollars, while those who just want to check e-mail can do so for free—and in either case, the value proposition is clear to both user and advertiser. And it’s not just about serving ads: with Anchorfree’s solution in place, he notes, those same hotels now have a new customer touch point for loyalty marketing that they didn’t have before.

Building on that idea, Smith says the next step is to offer targeted content with the ads.

“If alongside that advertising I’m getting free access to Wall Street Journal subscription content that would otherwise be paid, but since I’m staying at the Ritz Carlton it’s free, I find value in that as a guest,” he says. “If I’m at a hotel and alongside a little bit of advertising I find that I can try Netflix for free in my room only because I’m staying at that hotel, then I might find some utility in that.”

The point, Smith says, is that the perfect balance between advertisers’ and consumers’ needs has yet to be found—and there may well be many different ways to find that balance.

“This is much more than science,” Smith says. “It’s going to be a creative art to make this actually work and be universally accepted.”