Wireless Pricing Factors: Leverage and ConvenienceWireless Pricing Factors: Leverage and Convenience

Starbucks' decision to switch their Wi-Fi Hot Spot service from T-Mobile to AT&T was one of the first big surprises for this year. The bigger part of the story is the price. Wi-FiInternet access at Starbucks' 7,000 locations will essentially be free. As the deal has been described, if you have a pre-paid Starbucks Card and use it at least once per month, you are entitled to 2 hours of free access per day. While this establishes a new price point for wireless Internet access, it also demonstrates the failure of yet another wireless business model.

Starbucks' decision to switch their Wi-Fi Hot Spot service from T-Mobile to AT&T was one of the first big surprises for this year. The bigger part of the story is the price. Wi-FiInternet access at Starbucks' 7,000 locations will essentially be free. As the deal has been described, if you have a pre-paid Starbucks Card and use it at least once per month, you are entitled to 2 hours of free access per day. While this establishes a new price point for wireless Internet access, it also demonstrates the failure of yet another wireless business model.When Wi-Fi based Internet access was first introduced, it was touted as a significant new business opportunity. Subscribers could sign-up for unlimited monthly plans for $20 to $30 per month or pay several dollars per hour for occasional access. As near as we can tell, no one ever turned a profit on these subscription plans. The carriers like AT&T and T-Mobile don't split out their profit and loss by product line, and the independents like Wayport and Boingo are privately held. But no one is talking about profits.

As some of us identified at the outset, the only mechanism to monetize Wi-Fi services was to find somebody other than the user to pay for it. In particular, find a venue operator who was looking for ways to attract a particular class of customers. On a national basis, Panera Bread was a pioneer in offering free Wi-Fi Internet access, though lots of small independent businesses followed suit.

It remains to be seen whether this type of marketing pays off in the long run. Is it in the best interest of a retailer to have someone making a minimum value purchase (my Venti regular coffee at Starbucks is usually around 2 bucks), and then have them occupying a table for 2 hours? McDonalds used to design their chairs to be somewhat uncomfortable to get people out of the restaurant as quickly as possible. Now that McDonalds is starting to add coffee bars in their restaurants, I guess they're reevaluating the seating design. Given the relatively small size of most Starbucks outlets, the success of free Wi-Fi might turn out to be more of a curse than a blessing.

Will All Public Internet Access Be Free? It would be a mistake to look at the Starbucks example as an indication that free wireless Internet access will soon be the norm. When it comes to wireless pricing, everything comes down to leverage. When you're out looking for a cup of coffee, you're in the driver's seat, and Starbucks would like you to pick them over McDonalds or anyone else.

However, if you're at the airport, the airport authority has got you, and they still feel it's their God-given right to stick it to you any way they can. There are a few major airports like Denver International that offer free Wi-Fi, but most of the free deals are found at smaller regional operations who are looking to attract fliers. So I can get free Wi-Fi in Buffalo, but forget about LaGuardia or JFK (with the exception of Jet Blue's terminal).

Conclusion- Downward Price Pressure for Wireless For the enterprise user, the utility of Wi-Fi based services are still limited by the inconvenience factor; you go to it, it doesn't come to you. While lots of field sales and service people can schedule their time to get to a Starbucks once or twice a day to check their email, lost productivity costs too. If you want real convenience, that means cellular, and cellular costs. A Blackberry plan will usually go for $20 or $30 per month, but laptop service retails for $60 per month, though volume discounts can bring that down to around $45.

The good news is that the price for wireless access is trending downwards, though leverage and convenience will remain the driving forces. Given that we now have a Starbucks on every other block, their new pricing plan will put increasing pressure on the cellular operators. When you combine widely available free Wi-Fi with the growing popularity of softphones, we can actually have a voice service that's even better than cellular for routine callbacks.

If we can ever get WiMAX into the mix, the dream of reasonably priced, ubiquitous wireless access might finally become a reality.