How do hotspot locations make money out of wireless connectivity - simple, by not selling it.
The problem is that many businesses are jumping on the Wi-Fi bandwagon thinking they are heading for the goldmine, writes Rob Bamforth of Bloor Research
Many will fall off en route, many will get there and not find nuggets. We've been here before. The Internet boom and .com bust should have taught us one thing. Despite all the new ideas, opportunities and routes to market, the one vital piece of the plan is a financially solid business model.
Simple calculations on the back of an envelope will do for a start.
Let's do a Wi-Fi hotspot. Base costs are low, say £75 per month for broadband for half a dozen users and amortising the hardware costs over 3 years. If you revenue share with a provider managing the service for you, you may get 50 per cent of the £5 per hour they bill the user. So that's 30 user hours per month to breakeven. Or with access prices dropping to sensible levels that's more like 30 user days per month. A user per day.
Should be easy you think. But do you really want people camped with their laptops, occupying your expensive real estate for a few extra pounds? Depends on your business model. If it's geared to rapid throughput and making a margin from what you sell up to each person moving through, you'd rather they cleared off to let the next person in.
So it's surprising that McDonalds should want to set up hotspots in 75 'restaurants' in and around the San Francisco Bay Area. Even more surprising, they plan to bill by the two-hour period. They hope it will drive traffic during off-hours, but wouldn't it be better if they just sold more food?
When your business model is measured in fast bites not bytes, perhaps your wireless hotspot access should be given free with the food, or based on some kind of loyalty model. Better to give customers a reason to return than a reason to loiter. Of course the problem for most Wi-Fi users is they'll need to loiter long enough for their laptops to boot, connect and shutdown. Casual use hotspots really need an 'instant on, info graze and off' usage model for data access and I don't think we're there yet.
However the much-predicted crash of the hotspot market by many negative analysts is as over eager as the positive hype by the bandwagon jumpers. In any gold rush, the only sure way to make a fortune is to sell shovels. Or at least recognise that gold miners are a new target audience for your existing business.
Many would-be hotspot locations should recognise technology for what it is. An amplifier for existing business models. Just remember that too much volume causes distortion.
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