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April 29, 2008

Wayport Tops 10,000 McDonald's Locations

Ten thousand is an arbitrary place to put a stick in the sand, but significant nonetheless: The milestone of 10,000 McDonald's wired up--a few hundred have back access only, due to being stores within WalMart centers--is a vindication of Wayport's long-term strategy, dating back to 2004. Wayport switched at that point from a slightly more public-faced, public-access company to one that understood that back-office operations could be just as valuable, if less sexy, than front-facing consumer networks. Dan Lowden, Wayport's long-time marketing and business development chief, said yesterday, "In a lot of these venues, the back office comes first. The Wi-Fi public access for some is a big priority, but for others it's a nice to have, great thing to have, but the priority is the back office."

Although several other quick-service restaurants like McDonald's lack any comprehensive Wi-Fi plan--Burger King, Wendy's, and Subway to name three of the largest--Wayport is locked out of working with direct competitors. This opens the potential for another firm to handle a several-thousand-location network. Wayport has worked with both McDonald's corporate-owned stores (about 2/3rds of stores in the U.S.), as well as reaching out to franchisees, who Lowden noted pay a predetermined flat rate for the service via McDonald's. "It's made them incredibly efficient to be able to offer this to their franchisees at one price, instead of variable pricing," he noted. Wayport acts as the layer between various telecom providers, applications and services, and the stores.

Wayport provides several kinds of back-office services, although credit-card processing was the first thing htey rolled out. They've extended to remote video feeds for security, Redbox DVD rental systems that are found in some McDonald's, and kiosks used for job applications. Lowden said Wayport offers things as straightforward but critical as a dial-up fail-safe when a broadband connection drops.

Wayport also manages AT&T's hotspot network, which puts them in the unwiring seat for the 7,000-odd Starbucks stores that will converted from T-Mobile to AT&T service during 2008. Wayport was once the clear leader in the hotspot builder market, with T-Mobile in the second position. Now, Wayport will be operating through a direct contract or management agreement over 18,000 hotspots in the U.S.; T-Mobile will likely be the second biggest with a couple thousand locations (Borders and FedEx/Kinko's tops among them). The No. 3 player is hard to figure. Panera?

I've been predicting for some time that media on the edge--music, videos, movies, and games stored on servers on the local Wi-Fi network--will be the next big development in venue-oriented Wi-Fi, with Starbucks likely far in the lead. Lowden wouldn't comment on any specific plans in the works, of course, but said generally, "Storing and caching all that content on the edge...hasn't been leveraged in the past, but it will be in the future to create a very unique experience." At Barnes & Noble, Wayport caches some multimedia data that's available to customers in the stores.

The advantage for in-store media storage is that you can leverage the speed of the local network, and add additional access points to distribute network load. The choke point is no longer the Internet connection, but local network speed. I expect--though Wayport, AT&T, and Starbucks haven't said it--that Starbucks infrastructure will be all 802.11n for this reason, likely with both 2.4 GHz and 5 GHz support for the best throughput in the higher-frequency band for media transactions. (In fact, I wouldn't be surprised if you could only buy movies via 5 GHz.)

Lowden also noted that the proliferation of mobile devices with Wi-Fi built in have led to them reaching out to venues that wouldn't have made sense for them to work with previously, and for unlikely candidates to reach out to them, too. Wayport is now working with a number of healthcare facilities that, while they have their own network infrastructure, wanted to outsource public access Wi-Fi (whether they choose to charge or underwrite it), and certain applications that they're not as experienced with running themselves.

A little history: In 2001 and again in 2004, the heat seemed to be on the public side of Wi-Fi: lots of money to be made, ostensibly, lots of partnerships and venues to be built, and an overcrowded supply of infrastructure builders. The year before, Wayport looked to be an also-ran in the hotspot provider business.

Despite being one of the earliest firms to put Ethernet and then Wi-Fi into hotels, and build out hotspots in airports; and despite their survival of the first hotspot meltdown in 2001 during the dotcom crash and brief venture capital shortage; and despite their early entrance into allowing wholesale pricing for hotspot aggregators; the firm seemed about to be eclipsed by apparently deep-pocketed Cometa (with AT&T, IBM, and Intel in various capital and support roles), Toshiba's mom-and-pop focused turnkey system, and T-Mobile, which had the Starbucks contract. What a difference a year makes.

Cometa, Toshiba, and Wayport contended for the contract to build out back-office and public-access service at McDonald's in the U.S., and Wayport won. Within a few weeks, Toshiba passed its few hundred locations to Cometa, which shut its doors in May 2004. Wayport, meanwhile, had cooked up a strategy for McDonald's that it announced later that month.

Their approach involved a fixed-rate charged for unlimited access by retail network partners for all the locations in their pool. This meant that partners had a fixed cost, instead of a per-session cost, and Wayport could obtain specific revenue even before usage by a partner ramped up. Wayport hasn't discussed the details of this arrangement in depth since, but has partnered with Sony with its Mylo, Nintendo with its DS game player, and ZipIt with its wireless messaging appliance.

The McDonald's deal also apparently gave Wayport a way to extend its work with SBC-later-AT&T; Wayport had earlier in 2004 became the managed-services contractor for SBC to build out The UPS Store/Mailboxes Etc. nationwide. (UPS dropped AT&T as its partner in mid-2007, although that didn't appear to have anything to do with Wayport's role.)

AT&T through Wayport developed its large resold/managed footprint that incorporated resale of Wayport's McDonald's locations with the UPS Store and a few hundred other managed locations, including a handful of airports. The Cingular acquisition of AT&T Wireless put more airports in SBC's hands, too. (SBC was once the 60 percent majority owner of Cingular; when SBC and BellSouth, the other owner, merged that put the newly rebranded AT&T in charge of Cingular which it relabeled as AT&T. Confusing, huh?)