ABI Research expects the number of Wi-Fi hotspots around the world to grow by 40% in 2008 (over 2007) with the largest increase taking place in Europe, notably the UK, France, Germany and Russia. In addition, the decision of Starbucks to offer free Wi-Fi access is making other venues think twice about charging for Wi-Fi service. The research firm concludes that Wi-Fi is becoming an amenity that locations offer their guests, or a way to attract customers away from competitors. Indeed, as I have reported on Muniwireless, public transport operators such as the Danish railway operator Arriva and the Stagecoach bus service between London and Oxford are offering free Wi-Fi service to passengers.
ABI says that hotspots are moving towards a “free” model: “Charging for service is counter-productive in the long run because the real money will be in value-add content downloads. In the near future hotspots are likely to encourage users to pay to download the latest music and TV shows. Airport clubs are likely to offer hotspot users the chance to download movies for their upcoming trips. Starbucks has already begun selling music CDs in its stores. The next logical step will be to move to selling music downloads.”
I disagree with ABI’s conclusions.
(1) I don’t think that charging for Wi-Fi service is counter-productive per se. I think it is counter-productive in areas where people are in a hurry (railway stations, airports, bus depots) because the entire process — putting in your credit card number, getting authorized — takes too much time. For people who travel a lot, having to pay so many different airport and railway providers is a hassle. But because airports know they have a captive audience, a lot of them charge for Wi-Fi. The smaller ones do not, and there is a growing trend, albeit not growing fast enough for me, for airports to offer Wi-Fi for free.
Some people are willing to pay for Wi-Fi access where they have enough time to sit down and do work, and they will find it valuable only if it’s very fast and reliable (meaning, it lets you use your favorite bandwidth-heavy applications, download and upload speeds are fast). So I don’t think everything has to be for free. Many are willing to pay if the service is great.
(2) I disagree with ABI’s conclusion that the real money is in value-add content downloads. While large media and telecom companies that buy ABI’s research reports might want to believe that, in my view, most people just want to get on a fast, reliable connection and get on with their own applications: Skype for VOIP calls, Youtube for video, a variety of P2P music and video download services and applications, Microsoft’s and Google’s office applications, iTunes, and so on. In reality, people want the hotspot operator to get out of the way once they are connected. They are on the network NOT for the value-added content, but for the connectivity itself. I certainly don’t see people in airport lounges connecting to the Wi-Fi network wondering what great download offerings the airport lounge has for them on that day!
(3) So, if a hotspot operator thinks that it can make money (and therefore cover the costs of operating the Wi-Fi network) from value-added content downloads, it is mistaken. They will make money only if they offer better connectivity (faster, more reliable) than a competitor who is offering free, but inferior, service. Again, it depends upon where the Wi-Fi service is being offered and to whom. If people just want to check email quickly and are not uploading or dowloading heavily, they will be happy with the free “inferior” service because they are content with Wi-Fi that is just good enough.
(4) As for how hotspot owners are going to charge people who have Wi-Fi/3G devices when they move from 3G to Wi-Fi (this dilemma was mentioned in ABI’s report), frankly, it’s completely uninteresting to the user and the more expensive, confusing or cumbersome the procedure, the more users will migrate to free, open Wi-Fi networks. In a lot of airports, the airline lounges already have offer free Wi-Fi. If we are talking about a city, users will just sit in cafes with free Wi-Fi. It’s utterly counterproductive for a hotspot owner to think in this way.
In summary, hotspot owners have to be careful about the “free model”. Assuming that they will cover the cost of their investment and make money from content downloads is a fantasy. Users want broadband access. That’s it. They just want to get on the Internet and use their applications. They want the Wi-Fi provider to get out of the way. Some users are willing to pay for better quality access: very high speed broadband, fast symmetrical upload and download speeds, reliable service. But are Wi-Fi service providers willing to make the investments necessary to bring high-quality broadband service to users?