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April 3, 2003

Starbucks Says 25K Connections Per Week

Starbucks sells more coffee than service: Starbucks apparently told this writer, although the attribution is general, that 25,000 people connect each week in its stores. This number isn't broken out by monthly subscriber versus hourly or pay-as-you-go patron. With over 2,200 stores unwired by T-Mobile, this averages to 10 connections a week or a little over one per day per store.

In the best scenario, that income might average to $150 per store per month (say two monthly subscribers at $30 each and 15 hours at $6.00 each). The cost per store certainly exceeds $500 and might be as much as $2,000 per month.

However, one could expect that certain stores are turning a profit: in dense areas, it's much more likely that a store is racking up hundreds of connections a month, not just a dozen or two.

It's also disingenuous for T-Mobile to say that they aren't marketing the service: they send out direct mail, they promote it on their Web site, they tell their cell subscribers about it, and they're involved in co-marketing with Starbucks and HP (which has a so-called connection tool that works with a couple of HP-provided Wi-Fi cards, but they want on the bandwagon) as well as with Intel's Centrino campaign.

Here's the kicker in the story for Starbucks, not T-Mobile, which makes their saliva start to flow: And Wi-Fi service has turned him into a loyal Starbucks customer. "Having the T-Mobile has completely locked me down here, as opposed to the Cosi across the street," he said.

That's nice for Starbucks, but unless T-Mobile is given an incremental per store percentage of aggregate increased sales based on the number of Wi-Fi users at any given time, this doesn't pay the T-1 bill.


People seem to forget, this isn't rocket science!

The 'Cosi across the street' could bring in a business DSL line for around $79 a month, and install a tri-band D-Link DI-774 (802.11a/b/g draft) router for about $240.

Most customers couldn't tell the difference in service throughput between a T-1 and a DSL connection as their traffic is typically bursty. The little Cosi would launch with three Wi-Fi bands as opposed to one, a worthy piece of local publicity if actually of zero practical use as 802.11b is more than sufficient.

The Cosi could not only give it away, but could put in a patch antenna to blast free service to the Starbucks across the street. It amazes me that the private coffee houses aren't retaliating with such solutions.

I need my morning coffee!

Cheers Nigel

Actually, you only have to look at the Newbury OpenNet situation and you will see that this cozy little Starbucks/T-Mobile situation won't last long.

Also, note that he was a Cosi customer first. Obviously, he prefers their refreshments but the Wi-Fi access was the clincher. If it's a level playing field, i.e. Cosi brings in that DSL line, then he's back with them!

The Starbucks T-1 doesn't *have* to cost anywhere near $500/month IF you make the leap (that few have, yet) that it's FAR more economical to use of Broadband Wireless (the type intended for outdoor / long-range, not hacked-up 802.11b) links for providing bandwidth and backhaul. $200/month would be more like it, and that profoundly changes the economics of HotSpots.

It was my understanding that Starbucks installed T-1's to speed up credit and debit card processing. (Ever notice how fast the sales receipt spits out of a Starbucks credit card machine.) Isn't the T-Mobile service piggy-backing on the T-1, or is Starbucks piggy-backing on the T-Mobile service?

As for the little guy, a small coffee shop near my school recently installed wi-fi... Doesn't cost me anything to access there, and they play better music... :-)

Starbucks didn't install T-1s: they required MobileStar and then T-Mobile to install them. Starbucks isn't paying for infrastructure and their RFP said T-1s. Starbucks wanted a corporate infrastructure and the successive hot spot operators have been willing to pay for it. A T-1 is totally unnecessary where a DSL with a QoS and uptime promise was available. In fact, DSL would be better as it would be cheaper to upgrade it to faster service as technology improved or usage increased.

Glenn is correct. Tmobile is paying for the full T1 in some 1210 US Starbucks, they are full and not fractional circuits. Even if you negotiated the best deals imaginable, with an average of one connection per Starbucks per day, there is a lot of cash hemorrhaging going on.

I understood that Tmobile has to pay Starbucks a percentage of all connection revenue as well as allowing Starbucks to sit their own internal POS and IT infrastructure on the back of the vastly underused T1.

I like the idea of the Tmobile network in principal, I just don't like the monthly charges associated with it. $29.95 for unlimited Tmobile node use (airport/coffee shops) in the USA and I, and I'm sure many others would get their credit cards out without delay.

If some of these co-located private coffee stores had a little more business savvy, they'd be blasting their free Wi-Fi signal across the street to devalue the apparent technological edge Starbucks has.

Replicating the model is easy, making money out of it is another matter altogether.

Cheers Nigel

I have no idea why in the world T-Mobil and Starbucks charge for their Wi-Fi service. Its totally wrong.
I am about to start a coffee shop in Houston TX, and my sales can easily pay for a simlpe 54MB G-band system plus the 80 bucks of 1.5 mb DSL.

Starbucks should be sued, just as well as T-Mobil.