Happypenguin...
Your question is one that hit home for me as I used to work for a
company that provided wifi service for retail locations. Now, before I
go on, I will tell you that their model was one where the locations
provided the access as an amenity and did not charge for it. I
personally believe that this is the best model and will become the
norm over time. With that being said, you are looking at offering
wireless access to generate revenue, so I will address your needs. If
after reading my answer, you would like my argument for fee vs free,
let me know and I will gladly post it.
1) The technical needs as it relates to wifi access are pretty simple:
a wireless router and high-speed internet access are the bare
minimums you will need to have to offer this service. Chances are you
already have some type of internet access in your donut shop. If not,
you will need to have it installed. Being that you want to offer a
decent throughput, you will need high-speed, be it DSL or cable. That
decision will be based upon how much monthly you want to spend. Now,
you stated that purchasing a wireless access point on your own is not
an option, but you WILL have to have high-speed access installed.
There are companies that will provide you with the hardware, which I
will cover in detail another part of your question. Their models are
wide and varied and in my listing of companies, I will let you know
their pricing/subscription models. When you speak about being able to
log on to their network in various places, that is known as roaming.
Smaller companies that offer wifi services sometimes offer roaming
agreements with larger networks and thinking is there will be a shake
out over the next few years of the backbone providers for wireless
hotspot roaming.
2. Your question regarding how much money you can make is the biggest
key in all of this. One thing upfront, it will be impossible for me
to give you estimates because there are so many factors that will
determine the financial success of your offering. First, you need to
learn what locations close to you are offering wifi service and how
they are billing or if it is free. When looking, look at locations
that are appealing to the same clientele you are. Coffee shops are
obviously the most important. The fact that there is a Starbuck's
across the street should be of major concern when looking at pricing.
Your customers are saying the service is bad, so you have a built in
advantage that will help you determine pricing. Also, you need to
look at the additional revenue increase of your regular sales (coffee
and donuts) that may occur by offering the service.
There are a couple of things we can use to try and determine how much
you can realistically expect to make. Using your numbers, we will go
with 400 customers per day and 20 using the hotspot service. Now,
even with the greatest of use, expecting 1/2% usage is high. There
are several factors involved such as population, technical savvy among
your customer demographic, availability of hotspots, etc. Being in
New York City, you obviously have the population and you state that
people have told you that they would be willing to pay for the
service, so some of the battle is won. It comes down to two factors
when determining pricing: how long will the user stay online and how
much will they pay? This will help determine whether you charge by
the hour or by the day, which has a direct impact on your revenue.
Most fee-based hotspots offer daily, weekly, monthly and yearly
subscriptions, though there are those that offer hourly access. Here
are some samples of what Wifi providers are charging:
T-Mobile:
$6.00 per hour with $0.10 per additional minute OR,
$9.99 per day OR,
$39.99 per month with no commitment OR,
$29.99 per month with a 12-month commitment
This gives users access to all T-Mobile hotspots as well as locations
that have roaming agreements with T-Mobile. Bear in mind that in
T-Mobile supplies wifi access in Border's, FedEx Kinkos, and
Starbucks. They have almost 5,000 hotspots in the United States.
http://www.t-mobile.com/hotspot/services_plans.htm
SBC:
$19.95 per month with a one-year agreement. This is for only SBC's
network, not their "extended" network, which includes roaming
agreements.
$29.95 per month for access on all the FreedomLink locations and roaming partners
SBC also has a program where you can prepay based on the number of
times you connect:
$25-3 connections
$50-8 connections
$100-20 connections
Connections have to be used in 180 days from purchase. While not as
many locations as T-Mobile, SBC has the McDonald's contract as well as
UPS Stores and Barnes and Noble. They have also been running special
promotions where subscribers to their other services get discounted
(as low as $1.99 per month) access to hotspots.
http://www.sbc.com/gen/general?pid=5949
I use these two examples to show you what you are going against and
how to price your offering. With Starbuck's across the street, if you
are going to charge more, your service needs to be better (as well as
your coffee :)) so that people see a reason for paying more. From a
monthly vs. daily perspective, how long do you want to keep people in
your shop? Camping out is one of the arguments I will address in the
fee vs. free, but you need to look at how often you want to turn
tables, how much your average ticket price is and your daily revenue
right now because as you offer access and the service is accepted,
people will stay longer, but that doesn't necessarily mean they will
spend more. Hourly access may have them leave, depending on the
price, after one hour while monthly unlimited access may keep them at
your tables getting free coffee refills while new, paying customers
are left out. Being that you are a donut shop, chances are you have
alot of ?transactional? business where people come in, get their
coffee and donuts then leave. Offering wifi may get them to stay
awhile, but how much longer? That is the holy grail of determining
wifi pricing. What overall impact, outside of the revenue generated
by the hotspot itself, will your revenue see?
After all of that, getting back to your question, how much can you
expect to make. Easy answer is if you are charging $9.99 a month and
40 people are signing up, you are grossing roughly $400 from your
hotspot, so roughly $5,000 a year. This assumes 40 people per month
signing up and renewing every month. Probably not realistic. This
goes back to my initial statement of it is almost impossible to come
up with a true estimate to determine your revenue. But, let?s say
your average ticket price is $5.00. After offering the service, you
see your average ticket price increase by $0.50 per ticket. With 400
customers per day, assuming you are open 5 days a week, that is an
additional $200 per day in revenue that might not have occurred
without offering the service. Now, we are talking $52,000 a year that
can be attribute, at least somewhat, to offering the hotspot. Again,
is this realistic? Probably not. However, where you WILL see an
increase is bringing in customers during non-peak time, so your sales
will increase. Again, there are several intangibles involved when
looking at the revenue you will generate from offering the hotspot.
The other side is the gross vs net because there is going to be some
cost involved in offering the service. Depending on the route you go,
be it revenue sharing, outright subscription, etc (will cover those in
the company listings) it will not be all profit.
3) The majority of the companies you deal with will have a national
presence either through their own network or via roaming partners, so
it is more than likely that the service you choose will work in your
donut shop as well as with your brother?s café.
4) In March of this year, the parent company of T-Mobile said that
they were grossing $1.4 million per month in the United States from
their hotspots. Using their number of spots at the time, that worked
out to $13 per day per hotspot. Estimates are that by 2007, there
will be roughly 41,000 hotspots generating in excess of $3 billion.
Gartner has said that by 2007, revenue from hotspot users will surpass
$9 billion.
I have seen numbers ranging from 3 to 4 users per day at an average of
$7 per user to thousands of dollars per month. Several of the
companies I mention in the next portion of my answer offer various
theories and breakdowns of possible revenue scenarios
Now, the fun part. Sounds like you are looking for a turnkey solution
as opposed to a homegrown one. There are many, many players that
offer solutions for retail locations looking to become wireless
hotspots. I have listed several below along with how they determine
your cost and other requirements:
Surf and Sip
http://www.surfandsip.com/
Surf and Sip has specialized in providing hotspot solutions to cafes.
They provide all the equipment and you provide the internet access.
There is a $300 set-up fee and you are charged 25% of the revenue
generated from your hotspot, with a minimum monthly charge of $50
(this would be on top of the cost of your internet connection). Their
subscription plans:
Monthly:
$20 per month with a one-year commitment
$30 per month on a month-to-month basis-this automatically renews each month
Pay as you go:
$5 per day
$20 for 7 days
$40 for 30 days
$150 for 365 days
Prepaid Cards:
30-minute and 120-minute cards are available and you would sell them
at your store. They come in 15 minute and 60 minute increments and
work out to $2.50 per 60 minute interval.
They also offer a promotion of $100 for a year during the first 30
days your store would be online.
A couple of other things: You can have 20 users online at the same
time. The set up fee includes $300 worth of prepaid cards and they
provide you with signage, cup wraps, and other marketing material.
They are roaming partners with iPass, Boingo, Fatport, Trustive and
Excillian which opens up opportunity for many users to use your
service. They also have a plan where you can place workstations for
customers who don?t have a computer to logon.
Boingo
http://www.boingo.com/
Boingo offers their hotspot in a box service for locations like yours.
You will have to provide a PC, internet connection and a linksys
router. You earn anywhere from $1 for each connect day from monthly
subscribers and $4.00 if the user is a pay as you customer. You also
get $20 when a new user signs up for a monthly account and has 60 days
of service.
Monthly:
$21.95 per month with no commitment
Pay as you go:
$7.95 initial charge which includes two days of time. Then $7.95 per
month thereafter.
Boingo lists over 11,000 locations, which includes roaming agreements
with other aggregators. You also receive marketing and advertising
materials.
Café.com
Another company that specializes in coffee shop hotspot solutions.
They provide the access point, which they say is plug and play, you
provide the internet connection. Their subscriptions:
Monthly:
$34.95 per month with no commitment
Daily:
$6.95 per day
Hourly, etc:
$15.95 for 200 minutes per month
$0.17 per minute with a $1.00 charge for the first 3 minutes
They do not list their revenue sharing or set-up fees on their
website. Café.com was one of the first providers of solutions, though
their network is not nearly the size of the other providers.
WEBbeams
http://www.webbeams.com/
A fairly new player in the arena, information on their services is
kind of limited. They seem to be focused on the Midwest, but do have
a location in Connecticut. Their subscription rates:
Pay per use:
$1.00 for 15 minutes
$2.00 for 30 minutes
$.07 for each additional minute
Daily use:
$6.95 for a 24-hour period
Monthly use:
$15.95 for 1,800 minutes
or
$22.95 for unlimited minutes
They are partnered with NetNearU and Boingo for their roaming
services. This one may be worthwhile looking into as they seem to be
expanding and that may bode well from a pricing and revenue sharing
aspect.
Deep Blue Wireless
http://www.deepbluewireless.com
Another fairly new player, they don?t list their revenue sharing
breakdown, but say ?We believe that the best incentive for location
owners offering the service to their customers is financial reward. We
pride ourselves on offering some of the highest revenue sharing in the
industry.? They have a very strong presence in California with a
smattering of locations in other areas of the country. They seem to
be using Pronto Networks for their services (see below). This one may
be good for you and your brother to look into as they look like they
are growing and they already have a nice presence in California.
Pronto Networks
http://www.prontonetworks.com
Pronto is a large aggregator and network provider for wireless
hotspots. They offer a managed solution through reseller partners (of
which Deep Blue, listed above, appears to be). The property owner
(that would be you) gets 10% of the revenue while the Service Provider
gets 65%. They charge a monthly marketing fee of $15 to the location.
I mention them as you may run into resellers out there that may
appear to be offering their own service, when in reality they are
reselling Pronto.
There are other options out there when it comes to your solution,
including several do it yourself options and ?partial? do it yourself
options, which I was under the impression was not something you wanted
to look into. If that is not the case, let me know and I can give you
some of those options as well.
I hope this meets your needs and gets you started on the right track
for becoming a wireless hotspot. I am sure that my answer has brought
up other questions and I will be more than happy to answer any
additional clarification you may need. Below I have listed several
resources you can reference with hints, help and ideas on becoming a
wireless hotspot:
Create Your Own Hotspot
http://www.jiwire.com/small-business-guide-to-building-your-own-hotspot-why-be-a-hotspot.htm
A great tutorial that guides you in the decision process involved in
becoming a hotspot.
Being a Hotspot
http://www.wi-fiplanet.com/tutorials/article.php/3356141
A four part article that covers several factors involved in setting up
wireless access for your customers.
Again, thanks for your question and please feel free to request any
clarification you would need answered and if you are interested in my
fee vs free argument, let me know and I will post it.
Regards,
-THV
Search Strategy:
Very little. Majority from personal business experience.
Hotspot revenue
Hotspot tutorial
References:
WiFi Hotspot Revenue
http://www.paykiosks.net/wireless%20revenue.htm
T-Mobile Says $1.4M Per Month Revenue in 2003
http://wifinetnews.com/archives/003136.html |
Clarification of Answer by
tar_heel_v-ga
on
04 Nov 2004 22:07 PST
Let me address tour questions first, then I will give you my free vs fee debate.
1. The set-up of a hotspot isn't that technically demanding in that
several manufacturers, most notably Linksys, have hotspot in a box
(HSIB) solutions. Yes, they require a pc and some set-up, but they
have been designed with fact that, typically, a non-technical person
would be setting them up. You could look into local tech companies
that offer service contracts or possibly outsource the support on a
per call basis. I have seen contract support companies that you sign
up on a per call basis with a monthly minimum. Also, several of the
HSIB companies offer support as well. A route that several retail
locations go is that support is on the user. True, this can be a bit
hard to swallow for some, but the end-user needs to remember that they
are not paying for the solution, so obviously, support is limited. In
my experience, the typcial end-user support issue is not due to the
hotspot, but more along the lines of compatability with their hardware
or other issues with them, not with the network. As for support on
the router, access point or PC, that is something that can usually be
taken care of with a support contract, which normally are not that
expensive, with the manufacturer of the devices. Several companies
offer HSIB solutions (http://www.sputnik.com being one) that are
managed and offer support. If your internet connection goes down, it
doesn't matter what is on your end as it still won't work.
2. This is as good a place as any for my fee vs free discussion.
Wifi hotsports are quickly becoming a part of our everyday life. The
growth has been slower than initially expected, but is starting to
spike up. In my opinion, with the rapid growth of wireless devices
such as PDA's, wifi enabled laptops and wifi cellphones, eventually,
having wifi access will be expected. A good example is cable
television. Remember way back when (not that far, but realtively
speaking) when hotels used to put on their marquees "Free Cable TV" or
"Free HBO"? Well, at that time, it was new and exciting and
different. Then, eventually, they just advertised "Free HBO" and then
it simply became an expected amenity. Satellite TV has become that
way in bars and restaurants. If you want to go out to see a game, you
know the places that have the game and those that don't. No tangible
revenue can be directly tied to offering that service. I see wireless
access becoming the same way. Yes, people are going across the street
and paying $9.00 to use the wireless access. However, do you think
that if it was free right across the street, they would still pay the
$9.00? No. That is my point. The additional revenue you generate by
offering free access, even when you add in the costs, would be a
pretty strong argument. Sure, Starbuck's is going to have their
champions, but the people who are going over there, spending money on
coffee and pastries because they have the access would, I tend to
think, go to your location, buy your coffee and pastries because they
can save $9.00 just by going to your store instead of Starbucks.
Schlotsky's, the sandwich chain, offers free internet access. They
did a study and found that 6% of their customers came to a location
ONLY because they offered free internet access and 40% said it
factored in their decision to visit the restaurant. I can't find the
exact numbers, but let's assume 100,000 customers a year (because the
math is easy) and from the article, referenced below, we know the
average ticket is $7.00. 6,000 additional customers ONLY because of
wife being free and $7.00 per is $42,000. That is not taking into
account the 40% that said it was a factor in why they chose to visit.
Down to your scale. Would you like increase your customer count by 5%
while taking that away from Starbucks. And I can tell you from
experience, people will talk and word will get out very quickly that
you are offering free access, which will increase the business. An
example of this is hotels. More and more are offering free wireless
access, if not in the rooms, at the least in the lobbies. It
differntiates them. Sure, there are costs involved, but after the
intial captial outlay (which can easily be accomplished for between
$500-$1000) and your monthly internet expense, the profit is there.
Fee based wifi is a very viable option when you have a captive
audience, such as airports, car repair locations, etc., places you
HAVE to be. However, when the option is pay $9 a day (or $30 a month)
for the EXACT same thing you can get for free, which option would you
take.
3. As for usage at your brother's location, his best bet is to simply
ask the patrons that come in if they would use it and if they would be
willing to pay for it. Now, Palo Alto/Mountain View (I used to live
in Pacifica) is a VERY technically savvy population. I think that he
would see a great deal of usage. The company I worked for did several
Bear Rock Cafe's all over the country and they ALL saw an increase in
business after implementing the hotspot. He may get away with
charging for access if wifi isn't readily available. Some Bear Rocks
charge (we didn't do those) others didn't. Is $13 a day in revenue
directly attributable to the hotspot that big a deal when free could
generate more in your traditonal business? I can tell you that the
Bear Rocks saw an average of 3-5 new users registering a day when they
began marketing the wifi service and we saw alot of repeat business as
well. The key was letting people know it was there. Just like in the
movie "Field of Dreams", if you build it, they will come. The
difference is you have to let them know it is there.
4. I agree that joining a national network makes sense, but you need
to ask yourself how important that truly is. How many of your
customers are business travelers? A key point to keep in mind is
this: Members of Boingo or any of the other networks who sell
subscription based access are restricted to using hotspots in their
network or a network with a roaming agreement. If they can't find one
nearby when they need access they are out of luck. They can always
utilize free access. Even Boingo knows this because they have a
service where they list free wifi providers on their users software
(http://www.boingo.com/hso/free.html) so they can find you and use
your service and not be charged for Boingo access. An extremely
popular resource is Wifi Freespot (http://www.wififreespot.com/) lists
free wireless locations all over the United States. People utilize
this, along with other directories, to find free locations because
wifi users are smart enough to know that the chances of finding a free
hotspot are getting better and better everyday.
I can tell you that the company I used to work for has locations
within their own network all over the country, though a heavy
concentration in North Carolina. They have 21 locations including
Minnesota, Wisconsin and Georgia. All of these offer free access and
users can go from wherever they want and use the same username and
password, which if you think about it, is about the only true
advantage to a network like that. Whereas you would have to create a
name and password. If it's free, who cares.
Stepping off of my fee vs free soapbox now. It is obviously a
business decision you have to make. The direct revenue of a fee
solution or the indirect revenue of a free solution. I have listed
some resources below that will give you some other arguments, but the
thought is free is going to come out on top.
Wi-Fi hits the spot
Businesses find wireless Internet connection entices customers to stay
and pay a little longer
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/08/25/BU213993.DTL&type=printable
Restaurant Chain: Free Wi-Fi Is Good For Business
http://www.informationweek.com/story/showArticle.jhtml;jsessionid=EBESY5QH11IJEQSNDBGCKHY?articleID=17701257
Free or Fee? The Hotspot Debate Continues
http://www.wi-fiplanet.com/columns/article.php/3097961
"The researchers modeled five hotspots, three where service is
available for a fee and two where service was free. They found that,
on average, profits for the free hotspots were 533 percent higher than
those that had paid services because of increased coffee and food
sales. While these were just modeled scenarios, this may be the first
actual study I've seen comparing profits of fee vs. free hotspots.
That's a significant case for offering free hotspots"
http://wifinetnews.com/archives/002817.html
Wi-Fi's Still Free?In Some Places
http://www.pcmag.com/article2/0,4149,1503824,00.asp
Thanks again for allowing me to answer this question. I love the
industry and I think that the growth and potential are huge.
-THV
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