ROI for Coffeehouse Wi-Fi

Coffeehouse consumers can be demanding. They want double nonfat lattes. They want onion bagels. And they expect Wi-Fi. Notebook owners are rapidly acquiring the capability to connect wirelessly. Market research company In/Stat MDR estimates that by next year, 90 percent of all new notebooks will have built-in Wi-Fi connectivity. Coffeehouse owners are feeling the pressure to install hot spots at their establishments simply to maintain and, they hope, to grow clientele. But a wireless hot spot can change consumer behavior, so business owners are asking, Will customers abuse a hot spot, and is Wi-Fi a good investment?

Probably the most quoted evidence of successful Wi-Fi in a restaurant or coffeehouse comes from Schlotzskys Inc., owner of 600 deli restaurants, 30 of which offer a free Wi-Fi hot spot. For those 30 restaurants, the company figures that 6 percent of customers come for the free access and free computers. As a result, Schlotzskys estimates that in-store computing generates 15,000 additional customer visits a year. With customers spending an average of $7 per visit, thats more than $100,000 per store per year.

Dan Welch, who owns three World Cup Coffee shops in Portland, Ore., estimates that his free Wi-Fi network has added 10 percent to his overall revenue. Welch credits Wi-Fi consumers with spending three times as much on goods compared with the average consumer.

Starbucks Corp., owner of the worlds largest coffeehouse Wi-Fi network—2,600 stores—does not divulge specific numbers for its paid service, but it claims that month over month it has more users.

From there, the data gets increasingly sketchy. Even the Schlotzskys data, which appears to be the only hard numbers available for the industry, was conducted from a single-day data sample of 300 consumers in a few Austin, Texas, stores. Still, nobody seems to mind the lack of data. Thats because Wi-Fi has incredible power to bring in customers during nonpeak hours.

"People now have a reason to be there during times that are traditionally quiet," said Monica Landers, Schlotzskys director of communications, in Austin. "That brings a lot of life to the restaurant."

Glenn Fleishman, co-author of "The Wireless Networking Starter Kit, 2nd Edition," concurred. "If you can get bodies in the door buying coffee after 9 a.m., that is the golden thing," Fleishman said.

Unlike hotels, airports and conference centers, coffeehouses are not captive venues. When theres no competition for connectivity, its easy to charge customers. When choice increases, such as among competing coffeehouses, it becomes more difficult to charge customers for Wi-Fi.

To test which type of service—free or pay—would work best, World Cup Coffees Welch tried a pay service through Toshiba SurfHere from Toshiba America Information Systems Inc. in one cafe and offered free service in another. After three months, the coffeehouse with free Wi-Fi attracted five to six users a day. The cafe with paid service attracted only one user a week. Welch soon realized his place on the coffeehouse food chain and switched all cafes to free.

"A pay spot works well in some high-traffic locations; however, were a sit-down coffee shop. And as an independent, we needed a little more attraction, and a free service turned out to work better for us," Welch said.

Free Wi-Fi can be very attractive to business owners. Michael Prins used it as an incentive to entice customers when he opened Herkimer Coffee, in Seattle, next to an established competitor, Diva Espresso, which had no Wi-Fi. Before the cafe even opened, people were knocking on the door asking about the shops sign offering free Wi-Fi.

Surf and Sip Inc., the oldest fee-based Wi-Fi network in the United States, with more than 400 points of presence, recently began offering a free service to coffeehouses. Rick Ehrlinspiel, CEO and founder of San Francisco-based Surf and Sip, said, "A lot of these individual shops are feeling the pressure to give it away for free because they walk by a shop a block away and its just packed with people on laptops."

Surf and Sips Managed Free service validates users to prevent the network from being misused. If not managed, Ehrlinspiel warned, an open access point can be used to blast spam, which can cause a cafes IP address to be blacklisted.

"Every businesspersons concern is that you put in a free service thats of that nature and youre going to sell one cup of coffee, and theyll be there all day long," said Welch. "Well, it turned out those concerns got delayed because people are very respectful of the free service."

Tim Holmes, owner of Zocalo Coffeehouse, in San Leandro, Calif., said he greatly appreciates the customer-building capability of Wi-Fi. "If youve got the space to do it, and I do, having people in your place is going to draw in more people," Holmes said. "Empty places do not draw in, and they dont build community. ... Their hanging out to me is a benefit."

"The big part of this is, Where are the customers?" said Charles Golvin, an analyst at Forrester Research Inc., in San Francisco. "Today, from a willingness-to-pay point of view ... generally speaking, its an employee of a company ... its somebody who needs to work and is out on the road and needs to find a way to get a connection."

Finding a Starbucks is easy, and thats why most mobile business users spend $30 a month for access to Starbucks T-Mobile USA Inc. HotSpot network.

Cafes in high-traffic areas with less competition may be successful charging an access fee. If going the paid route, consider a roaming partner. While a Wi-Fi service provider can set up a hot spot and charge a monthly fee for access to its network of hot spots, a roaming provider extends consumer choice by aggregating multiple hot-spot networks so they can be accessed under a single monthly subscription. Boingo Wireless Inc. has agreements with 51 hot-spot operators, providing subscribers with access to 5,300 locations around the world for $21.95 a month.

While turning on a Wi-Fi network is simple, monetizing it is not. When a coffeehouse charges a fee for usage, it must begin servicing customers by setting up accounts, processing credit cards and providing tech support. Add all these new costs together, and for many independents, charging just isnt worth it.

Some solutions dont limit Wi-Fi use just to customers. Schlotzskys takes advantage of its high-speed connection for point-of-sale systems and for the corporations extranet. For Starbucks, the network increases the productivity of district managers by as much as 25 percent, officials said. They spend less time shuttling back and forth from the office and spend more time in the stores they need to manage.

"We do think over time we can put applications on top of the network that would greatly expand that offering," said Anne Saunders, Starbucks vice president of marketing, in Seattle.

Unlike most technical investments, Wi-Fi success doesnt require very much technical knowledge. When eWEEK asked Prins of Herkimer Coffee about his Wi-Fi configuration, he responded, "We have a, I dont even know what it is, its just a thing that makes it wireless basically."

Wi-Fi business models Want to install a hot spot? The right model for you depends on your business, location and competition. Heres a breakdown of how coffeehouses are doing it.

Free Purchase a wireless access point ($35 to $250) and a monthly DSL or cable account ($30 to $100). Most carriers will require you to get a business-grade account if youre reselling bandwidth. Offer no support.

Managed Free If you want support and protection from IP address abuse, Surf and Sips Managed Free service will validate but not charge users. The initial cost is $200, with a monthly subscription fee of $50.

Paid Surf and Sips paid service has the same initial setup cost but no monthly charge assuming you can exceed $50 a month in revenue.

Roaming Partner Roaming partners like Boingo, iPass or GRIC can monetize your connection over a network of multiple providers. With Boingo, cost is nothing and revenue ranges from $1 to $2 per user-connect day.

Money for Nothing Telerama Internet offers free Wi-Fi access to its dial-up and DSL customers through a Wi-Fi network of 100 Pittsburgh-based coffeehouses.

Promote No one can see Wi-Fi. Thats why you have to advertise its availability in your venue. Make sure to notify all hot-spot locator sites such as JiWire.com (www.jiwire.com).

Free-lance writer David Spark can be reached at david@davidspark.com