Will Wi-Fi's Future Be Paid Or Free?

The future of Wi-Fi may be playing out in a quiet neighborhood in Austin, Texas. At a Starbucks Corp. store, Wi-Fi users fire up their laptops and log onto the Internet. At nearby Schlotzsky's, the sandwich shop's patrons likewise log onto the Web. The difference? Starbucks charges $40 a month for the privilege; at Schlotzky's, it's free.

In fact, sometimes when the Starbucks partrons settle down for a hot cup of java they actually log onto Schlotzky's free Wi-Fi service, because the sandwich shop's signal covers an area that includes the Starbucks store. As Wi-Fi spreads, this scenario could become commonplace.

For if Schlotzsky's experience with free Wi-Fi is any indication, the phenomenon will likely spread. Monica Landers, Schlotzsky's director of communications, said Wi-Fi has been installed in 40 of its 600 stores scattered across 38 states. "WiFi is a real draw," she said. "It creates a friendly buzz in the restaurant. Now we always have people there, and that's good. Nobody wants to walk into an empty restaurant."

The Wi-Fi program--along with Schlotzsky's free use of in-restaurant PCs--is now mandatory for new franchisees. And many existing Schlotzsky's proprietors are installing Wi-Fi service in their sandwich shops. Landers said the chain was initially worried that that people would "hang around" too long, but that really hasn't been the case. The lunchtime crowd moves on quickly to go back to work, and other Wi-Fi users just seem not to linger. She said a survey of Schlotzsky's patrons indicated that six percent visited primarily for the Wi-Fi access.

Most Wi-Fi commercial sites are still for paid subscribers--Frost & Sullivan estimates that two-thirds to three-quarters of commercial Wi-Fi locations charge for the service. But the market-research firm's wireless analyst has speculated that the percentage could reverse, with free sites overtaking the charging locations in two years.One start-up company with designs on making the free Wi-Fi business model work is HotSpotNation. The Gloucester, Mass., company has developed a simple Wi-Fi turnkey system that can be easily hooked up with either DSL or cable modem broadband. Individual locations--typically a coffee shop or a diner--offer the service gratis. "We offer it as a courtesy," said Rick Noonan, the proprietor of Cape Ann Coffees, a Gloucester coffee house that offers free service. "It's been good for business. It differentiates us."

David Malley, HotSpotNation's founder, said the service, which is underwritten by advertising, is offered free to HotSpot operators. Built with the idea of being easy to operate, store proprietors can offer advertising on the system if they choose. Malley says the toughest technical challenge in designing the system was to develop software to make the system secure for its owners. Individual users--usually with laptops--are responsible for their own privacy and security, as they are in most Wi-Fi locations.

Malley has hopes of rolling the system out more broadly and of eventually linking all HotSpotNation sites in a big network. "We want to bring this to a mass market," said Malley. "It's easy to install, easy to use, and affordable."

He contrasts his business model with those of the major firms rolling out subscriber-based Wi-Fi networks, noting that the subscriber-based locations tend to be "too expensive to own, need high maintenance, and you need a professional to operate them."

The future of commercial Wi-Fi sites is still in flux, and it's impossible to tell what impact free commercial locations will have on paid subscription sites. T-Mobile USA Inc. has built out about 2600 Wi-Fi locations for Starbucks and is installing another 1200 at Kinko's locations. McDonald's has been testing the concept for its fast food franchises, and scores of hotel chains offer the wireless service to patrons, sometimes free, sometimes paid. At the same time, the number of free sites is growing rapidly--in all kinds of locations, from libraries and coffee shops, to diners and restaurants.At this point, no one knows where it will end. In the quiet Austin neighborhood where Starbucks' customers often log on to Schlotzsky's free Wi-Fi service, the jury is still out. "It's a mutual admiration society," said Schlotzsky's Monica Landers of the two locations offering Wi-Fi service. "We're not in direct competition."