GearBits

On the Futility of Fee-Based Wi-Fi

From coffee joints to malls to major infrastructure providers, it seems that everyone wants to make money from Wi-Fi hotspots. I have sincere doubts that Wi-Fi will ever contribute significantly to a third party's revenue. Why? It comes down to basic economics.

Generally, companies make money by providing goods and services that create value for their customers. Those firms that produce the most value, or those whose goods and services generate the greatest utility, for their customers often stand the best chance of capturing that economic surplus (i.e. making big bucks).

Wi-Fi hotspots just don't represent a significant source of incremental value for most customers. Therefore, most won't be willing to pay an extra out-of-pocket expense. Those customers who do feel it's important are still not patronizing those service providers because of the Wi-Fi -- it's an additional service enhancement, not a core service. Also, Wi-Fi hotspots are starting to seem potentially redundant (and may soon even look a bit quaint) in the face of the forthcoming 4G cellular technologies that offer similar speeds but far more ubiquitous coverage.

The best strategy is to assess how having Wi-Fi access in your service establishment, be it an airport or a coffee shop, aligns with your overall strategic intent. Does Wi-Fi, as an ancillary service, reinforce your core service or make it more attractive? Is Wi-Fi a source of differentiation for you? Does Wi-Fi bring in incremental customers?

If the answer is "yes" to any of those questions, then add the relatively inexpensive infrastructure yourself and just provide free Wi-Fi service. Flip on the switch and let your customers lap up the goodness. Wi-Fi is a fairly scalable service enhancement -- it represents a relatively low fixed cost and an even lower incremental cost.

Plus, don't even think about charging your customers for it -- that's not consistent with idea of adding value to your service. Operationally speaking, it just doesn't work out. While you will indeed get to collect some (rather paltry) usage fees, you will end up reducing the number of customers who will use it (i.e. fewer customers will perceive it as value-added), which makes it harder to make a return on the investment, and you will be forced to deal with the hassle of access codes, user accounts, billing, etc. ad nauseum. Outsourcing your Wi-Fi access to someone else who is hoping to make money off of the service is similarly misguided -- not only is there little to no incremental value for your customers, you don't end up earning much anyway (since somebody has to deal with all the operational hassles).

Basically, it comes down to one simple rule: If Wi-Fi is important to your customers, give it to them for free. If it's not important to them, don't bother with it in the first place. The economics don't support fee-based systems, and the increased customer loyalty you're likely to get from giving them an extra service enhancement (that's cheap for you) will more than make up for whatever minimal amount is associated with installing the system in the first place.