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Shosteck Group states public hot spots an unprofitable idea from start to finish: A friend forwarded an email briefing from this interesting analyst group about the future of wireless hot spot profitability. The briefing states, Our analysis shows that despite increasing numbers of laptop computers equipped with WLAN capability, only a tiny fraction of those laptops will ever pay to connect to a public WLAN network. In short, we believe that wireless operators will find public WLAN networks to be an unprofitable loss leader.
They go on to note several reasons: both lack of ubiquity and cost to build out ubiquity (they estimate 100,000s of hot spots needed, which I agree with); lack of a deep market space; free public WLAN access in many areas; and the use of public access as a secondary tool for people who travel, thus having less value associated with it.
While I think their analysis is pretty much correct given their assumptions, I also believe they're reasoning from the wrong direction: public commercial hot spots are clearly on track to develop as an adjunct to lower-speed cellular data networks, and thus service pricing and availability will be tied to an overall development of that market across all kinds of devices and all kinds of users.
I have a feeling that this analysis, when applied to the nascent cell market many years ago would have resulted in a statement that because payphones and free local calls were available pretty much everywhere, no one would pay a much larger fee than their home phone line service to have coverage when they traveled.
There's a transformative time ahead when the commercial hot spot market either floats or fails. The time when that comes is when we see a cell company start to build out 10,000 APs in a year, and all the major airports have service.
The big limiting factor in people paying is clearly airports. The airports have their own mandates and declining concessionaire revenue. So it may be 2 to 3 years before the 35 major market airports have substantial coverage.
But that day will come because the battle will be won or lost first in the airports. Hotels are slowly but inevitably adding Wi-Fi service because business travelers demand it. 2.5G and 3G data services are slowly showing up as well.
When a business traveler--which is surely a niche, but a multi-million person niche--can have access at all kinds of speeds with a single (or no) login, and a single bill as they travel continuously from one place to other via airports, hotels, conference centers, and the back seat of cabs, the market will thrive.
Until then, everyone is trying concepts on for size, looking at adoption rates, and trying to light the spark that starts 10,000 APs being built.
Other News for 9/12/2002
WET11 Superstar!: The Linksys WET11 wireless bridge gets its day in the sun. I offer a reasonably technical review at O'Reilly Networks; Nick Wingfield, a colleague at the Wall Street Journal, provides a more realistic consumer view; and Slashdot picks up my suggestion to discuss the article and the device. I'll be writing a more technical column still about how the WET11 bridges MAC addresses in a week or so.
A pile of feedback has poured in about the article and the product, including some technical detail and potential bugs (it translates MAC addresses into a single address to fool the access point; DHCP seems to break in some cases with it), and some disappointment by people who expected it to be a network-to-access-point bridge, when it's just a many-devices-to-access-point bridge. More on this soon.
Boston Globe on Boston hot spots: Solid reporting on the business and practice of Wi-Fi hot spots in Boston. Nice to know that Boston has Michael Oh, kind of the east coast Rick Ehrlinspiel. Rick showed up at Starbucks/T-Mobile's rollout announcement to hand out cards to the press and set up a Surf and Sip hot spot next door; Michael Oh used a portable Wi-Fi system set up in a car to offer free access across the street from a Starbucks on Labor Day.
Glen,
There are important difference between telephone service and Wi-Fi when drawing an analogy with payphones:
One - telephone toll service costs are usage based so there is no way a local venue will "give it away".
Two -A telephone line will only support a single user; and,
Three - offering local service is only a partial solution, almost certain to draw complaints.
As a result businesses don't offer it as a service unless a Payphone operator is willing to put in the phone. Payphone operators for the most part share revenues, but also insist that there is a charge for local calls. And so it goes.
On the other hand, Wi-Fi monthly costs are fixed and support multiple simultaneous users - you install it, home it on your web site, and then basically ignore it.
I ask myself - "If I had a small business like a restaurant, a coffee shop, or whatever, would I give away a service that: cost a few hundred $ to install; had no incremental monthly costs; and, would increase awareness and traffic in my store (given I needed Broadband access anyway)?". To me the answer would be "Hell yes!".
Large commercial venues servicing business users: have a captive audience; different business models; are "local monopolists"; and, may decide to take advantage of the situation. Certainly Hotels have a track record of overcharging for phone service on this basis.
If the phone companies were smart they would offer a bundled managed AP/Firewall/QOS/Web Site with their commercial DSL services and laugh all the way to the bank. There are of course two problems with this way of thinking: 1. They themselves are monopolists; and, 2. From my experience with them over the years, they aren't very smart!
And what about kids and parents with laptops with unrestricted access to Wi-Fi at home, at work and in school, and increasingly in libraries and town buildings (the bulk of my imagined customers). My guess is that Starbucks will soon be the only coffee shop in town where I have to pay for Internet access.
My view is that ubiquitous APs are a certainty however, who makes a business deploying them isn't at all clear.
Gordon