Will patience create a Wi-Fi winner?
Published: 23 Sep 2003 13:15 BST
What impact will Wi-Fi have on next-generation cellular technology?
Wi-Fi certainly challenges some assumptions that people have about 3G. It doesn't replace 3G by any means. In fact, 3G is better off because of Wi-Fi. It solves some of the problems you have with 3G in that it's hard to deal with high demand in a congested area with a wide-area network. You can't deliver the kind of high bandwidth over extended ranges. You need Wi-Fi for that.
The more carriers look at it, the more they're going to realise that this is going to be a good way to offload demand to a much lower cost system that in many cases has more bandwidth. The two puzzle pieces have to fit together, Wi-Fi and 3G, and the first companies to figure out how to deliver both are just going to explode with success.
Everyone likes to pit the two against each other.
Yeah, it makes for interesting debate, but it's really not one versus another. It's a complementary situation. There are much more controversial issues, such as voice over Wi-Fi.
One beef that analysts have with hot spot service is the absence of any model that makes money.
We're in a development stage of a new industry. You have to look at the business model, not whether or not anyone is making any money today. The business model is very easy to understand, and it's driven by low cost.
Do the maths for me.
It costs $150 a month in all to provide the service, or $5 a day. Can you generate $5 per day per location in order to break even? Let's say you have 300 customers walking into your coffeehouse per day, and you have a 2 percent conversion -- which is low -- so that's about six people a day. Boingo pays the hot spot operator approximately $2 per connection, and that's what the cafe owner would get. So six customers a day times $2 is $12 per day. That's $360 a month on a $150 cost, which is a 60 percent profit margin. And that's before we have the kind of ubiquity in Wi-Fi devices that we're going to have.
So when you walk into a Starbucks three years from now, what will you see?
When you walk into a Starbucks three years from now you're going to have multiple Wi-Fi devices on your person. You're going to have your laptop, your PDA, your phone, your MP3 player -- who knows what else? And all of those will be aware and be able to connect and download and update, etc. The business model is clear but it's early. I think it's totally reasonable for people to have questions.
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