Wireless: Fun but no profit

• Josh Mehlman
• 4 July 2008
• Page 1 of 2 : single page

Photo credit: Hilbert Ho

The equation seems simple enough: lots of your customers have laptops and you want your customers (particularly the ones who have enough disposable income to buy laptops) to stay longer and spend more. Put in a wireless hotspot and wait for the cash to start rolling in.

“Being able to go to a nearby Wif-Fi hotspot and sit around with your team, have a coffee, talk, check email and other online resources – this is all the more relaxed out-of-the-office experience that so many office workers can only dream of,” says James Turner, an information security analyst at Intelligent Business Research Services. “Australia has a wonderful outdoors lifestyle and it’s a shame that there are not more Wi-Fi hotspots in CBD areas like cafés and parks.”

Big is bad

Wide-area public wireless hotspots based on Wi-Fi technology are uneconomical and technically difficult. The New South Wales Government announced in November 2006 that it wanted to install free public Wi-Fi networks in the Sydney central business district and in major business centres Gosford, Liverpool, Newcastle, Parramatta, Penrith and Wollongong. (A cynical reader would note that major business centres North Sydney and Chatswood, located in seats held safely by the Liberal Party, were absent from the list.) The planned network would be made free to customers and be supported by advertising revenue.

In May 2008, Commerce Minister Eric Roozendaal announced the project would not go ahead because it was not practical, based on “technical and financial grounds”. He said similar schemes in Chicago, Houston and San Francisco had failed commercially and been scrapped or bailed out by the government.

Small is… ?

Although a city-wide wireless hotspot is unlikely to work, do the same problems hold at a micro level – say, a café or bar? The technical challenges are much easier to overcome: simply install an internet connection and a wireless router. A single device, costing around $150, can perform both roles. More complex environments, such as larger areas or buildings with multiple rooms, might require more routers to ensure an even signal.

Businesses in areas with high concentrations of office workers can offer wireless access to attract customers. A wireless network can also induce them to stay longer and spend more.

“We have noticed that offering wireless internet access has had an impact on customer numbers,” says Tracey Holderness, chef and owner of Strawberry X café in Surry Hills. “We see it as an add-on to customer service. There is no minimum purchase or codes to get. You just come in and log on.

“We have a lot of regulars who come in for breakfast and use the internet. There is a blackout from 12–2pm and most people just want to have lunch anyway.”

For this basic solution, it comes to a simple equation: cost of the wireless connection against the additional revenue from customers.

“A café depends on how many people turn over and how much coffee they buy,” says Ravi Bhatia, chief executive officer of Primus Telecom. “It’s possible a wireless network connection could encourage people to stay longer and drink more cups of coffee.” Another possibility is that customers purchase one coffee and stay all day, reducing the café’s turnover, he speculates.

But can you make a profit from providing a wireless hotspot and charging customers for it? There are two major stumbling blocks to consider: the business model and the security risks.

Can you sell it?

Hotels often provide wired or wireless internet access as a value-added service for customers – which means they charge extra for it, or build the cost into the room tariff for business travellers. In a controlled area with a captive market, it makes sense to build an infrastructure for onselling internet connectivity to customers. However, this model may not work as well in a more public environment.

Primus Telecom ran a series of pilot projects putting commercial wireless hotspots at cafés in Melbourne.

“It’s very easy to install but no one makes money out of it,” says Bhatia. “We have the technology and the ADSL coverage to provide a service for customers who want to deliver a wireless hotspot; the challenge is, I can’t find a viable business model. The only exception is airports, where people are willing to pay because they’re waiting.”

“It’s a convenience for customers to go to the café; it’s a nice service to add on, but not an additional revenue stream,” agrees Derek Hume, network integration business development manager at systems integrator Dimension Data. “The business case doesn’t really stack up, but business owners are saying they need to offer that service as a carrot to get customers in.”

However, introducing a charge or a minimum purchase requirement may be necessary to recoup the costs.

“Starbucks in the United States was initially giving wireless access away, but people were sitting there all day and not even ordering coffee, so they started restricting access, says Hume.

In addition, people who need to work remotely are increasingly using mobile broadband technologies such as HSDPA, provided by mobile phone networks. If they are paying for this connection, they are less likely to pay a fee for a wireless hotspot.

“The recent development of HSDPA has minimised the need for wireless hotspots,” Bhatia says. “Wireless hotspots took too long to develop and the technology has overtaken them. The next generation of laptops will have HSDPA built in.

“Even though HSDPA access costs ridiculous amounts, the convenience is there, because it’s available everywhere.”

Keeping tabs on users

Whether providing a free or commercial service, it is essential to maintain control over who can access it and for how long.

“You have two levels of security: giving people access and encrypting the data to make sure it isn’t intercepted while sending and receiving,” says Hume. “All the wireless access points these day offer basic encryption, which will give you sufficient security for the average small business.”

However, the common practice in cafés and other public hotspots of having a single password which staff can hand out to customers may be asking for trouble of several kinds.

A single bandwidth-hungry user could slow or block off the connection for everyone else. Opportunistic customers who live or work nearby could mooch off the connection even after they have left the premises – wireless networks can theoretically be accessed up to 50 metres away.