Good article on location vs. the network for Hotspots...

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Robert J. Berger" <rberger () ibd com>
Date: Fri, 11 Apr 2003 16:10:31 -0700
To: Dewayne Hendricks <dewayne () warpspeed com>, Dave Farber <dave () farber net>
Subject: Good article on location vs. the network for Hotspots...


Wi-Fi's Weakest Link
http://www.pyramidresearch.com/info/wifi/gw030409.asp

The public Wi-Fi value chain is quickly evolving -- from the venues who pay
for the access points to the service providers who install the access points
to the operators who aggregate and sell subscriptions to the network as a
whole.

However, every chain has its weakest link, and in the case of Wi-Fi, I see a
tenuous link between the venues and the operators who depend on them to
succeed. Consider, for example, the coffee shop.

The Venue's Point of View
Let's pretend you own a coffee shop. You've been hearing a lot about this
Wi-Fi revolution and a few of your customers have asked if you offer hot
spots. And then one day a Toshiba Hotspot reseller comes knocking. Here's
what the reseller proposes:

    * You buy the hotspot package (about $800).
    * You buy a DSL connection and pay the monthly fees ($60/month).
    * In return, you get 20% of the access revenues generated from your
customers (Toshiba splits the other 80% between itself and the provider that
installs and supports the hotspot).
    * You also get additional foot traffic simply because you offer a
hotspot. 

20% of What?
So how much can a coffee shop reasonably expect from that 20% revenue share?
Assuming that you get 10 users accessing the network at $8 per day, you'll
receive $16. This adds up to more than $400 a month, which will pay off your
upfront investment in less than three months. Not too bad.

But what if daily access fees drop to $4 a year from now (which is not
inconceivable)? You'll then bring in only $8 per day/$240 per month. You're
still covering your DSL connection, but you might consider demanding a
bigger slice of the revenue pie. After all, you own the access point, you
pay for the connection, and you pay the rent on your building. In fact,
what's to stop you from charging customers directly for access,
marginalizing the operators altogether?

Locations vs. Networks
Current revenue share models value the network far greater than the
location. And while a network of Wi-Fi hotspots is indeed critical to
driving usage, it cannot exist without the locations themselves. Keep in
mind that it is the locations that are largely financing the build-out of
this global Wi-Fi network and will have a say over how it is used.

Granted, the coffee shop is not representative of all locations. An airport
could be a cash cow with a 20% revenue share given its high volume of
(captive) customers. Yet it is the hotels, coffee shops and shopping malls
of the world that will determine the ultimate fate of Wi-Fi.

Learning to Share
At a 20% revenue share, I'm sure plenty of venues will take the Wi-Fi
plunge; however, they will enter the waters cautiously. Now imagine how many
venues would dive in if they received a 40% or 50% revenue share. They would
view themselves as true partners in the Wi-Fi network (which they ultimately
are) and not lowly distributors. More important, venues that stand to gain
more in revenues generally do a better job of promoting Wi-Fi to their
customers and increasing usage (we've seen this reflected in hotels).

Looking Ahead
So will Toshiba, Cometa, Boingo, and the rest loosen their revenue share
models anytime soon? They'll certainly fight it, since they have their
margins to uphold. But in the end I think they will have to be generous --
or open the door to more competitors. Wi-Fi is a location-based network; you
can't have a network without the location. Locations, acting alone or in
concert, will come to realize that they are worth a lot more than 20%.

What do you think?
Agree? Disagree? Please send me your thoughts.

John Yunker
+1 (617) 494-1515 x257
jyunker () pyr com


--
Robert J. Berger - Internet Bandwidth Development, LLC.
Now back in California from Tokyo
Voice: 408-882-4755 eFax: +1-408-490-2868
http://www.ibd.com


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