Before Wayport had much time to glory in its April win of a bid to unwire McDonalds restaurants, one of its key competitors went belly-up.
Immediately, it seemed, pundits and analysts everywhere were asking whether the retail model for Wi-Fi hot spots—the one that suggests wireless connectivity will attract new customers to a venue—had any promise at all.
Cometa Networks Inc., a wholesaler of hot-spot infrastructure services, announced last week that it is suspending operations, just as MobileStar Network Corp., Joltage Networks Inc., hereUare Communications Inc., Aerozone and others with similar ambitions had done before it.
Cometa, along with Toshiba, had been vying with Wayport Inc. for the McDonalds Corp. deployment.
For Wayport, McDonalds is a new kind of gig. The company has built a successful presence in the travel and hospitality sector, providing hot-spot services to mobile professionals—the people most likely to use them—in more than 800 hotels, a dozen airports and 16 Laptop Lane business service centers.
So, why on earth is it fooling around with retail? Does it really expect to make money in an environment where laptops share tables with special sauce, Cherry Cokes and sticky fingers?
Obviously, the answer is yes. Wayport would not have pursued the business if it didnt want it—and it wanted it very much.
The reason why became obvious yesterday when Wayport introduced Wi-Fi World, a whole new business model—designed around its partnership with McDonalds—that it plans to use to turn the Wi-Fi retail sector into fertile territory.
The strategy appears to have something for everyone in the Wi-Fi chain, especially Wayport. It leverages the Wayport-McDonalds partnership by opening the relationship to other partners—for a fee.
Heres how it works:
For McDonalds, theres the promise of picking up a bit of business from the 400,000 monthly customers who now connect to the Wayport network.
For a company thats been trying to shed its historical clownish image and extend its brand beyond the Ronald McDonald crowd to mobile professionals, thats a powerful draw. But Wayports plan does not begin and end with customers.
Additionally, it will provide participating restaurants with location-based services for employees, including e-training and wireless access to business applications.
There are opportunities here for broadband providers, including wireless and wireline carriers, Internet service providers, cable and DSL providers, and satellite and mobile operators.
Not only do providers stand to pick up a bit of business from McDonalds, they will have the opportunity to join the Wayport network and greatly expand the number of hot spots they can offer in their own hot-spot service for customers.
For its part, Wayport will receive a fixed monthly fee from McDonalds for every restaurant it unwires, as well as fixed fees from the providers.
And it offers local integrators who work with the company the opportunity to deliver managed service offerings to the restaurants in the forms of providing security and deploying business apps.
Wayports Wi-Fi World isnt just drawn around McDonalds. The strategy is Wayports entry ticket into a whole new market—the retail space currently dominated by T-Mobile USA Inc., which services Starbucks Corp. and cafes in Borders Inc. bookstores.
If Wayport succeeds in unwiring even half of McDonalds 13,000 restaurants, it is looking at a tenfold expansion of its network. Cometa projected at its launch that it would have 15,000 hot spots online by 2005, a goal it fell considerably short of.
The key difference between Wayport and Cometa is that Wayport is not starting from scratch. Its ambitions are tied to relationships it already has in place and has every reason to expect will deliver.
Wayport was already partnering with AT&T Wireless, Sprint Communications Co. and SBC Communications Inc. when it won the McDonalds deployment.
The issue is whether Wi-Fi will deliver what McDonalds wants. Dan Lowden, Wayports vice president of marketing, said he believes it will.
Wi-Fi service, he told me, has already proven to be a differentiator in the airport and hotel business. “If a hotel does not have hot-spot Internet access, theyre losing occupancy,” he said. “From that standpoint, business is very, very good.”
Lowden said he looks for Wayport to repeat the success nationally that it enjoyed in its McDonalds trial markets. Wayport deployed hot spots in test markets in San Francisco; Portland, Oregon; Raleigh, N.C.; and Boise, Idaho.
“We found that theres a lot of interest from people in using the service,” Lowden said. Why? According to Lowden, users know they can get connectivity in hotels and airports, but Wi-Fi service remains limited in conventional venues that people frequent on a daily basis.
But it might be a while before families start toting laptops into their favorite haunts. A survey of hot-spot users done by Parks Associates last year showed that the vast majority of hot-spot users are still the road warriors—mobile professionals who require connectivity to do their jobs.
According to Michael Cai, a senior analyst at Parks, “More than 35 percent of Internet households are familiar with the concept [of hot spots], but only 3 percent had used hot-spot service and only 1 percent had become subscribers. Its not a mass-market service yet.”
If consumer demand were the only issue, it would be reasonable to ask whether McDonalds might not just pull plug on the deal if wireless connectivity fails to bring customers into the store.
But Wayport is not approaching this as purely a consumer service. In delivering business applications, e-training and other business services to McDonalds employees, the unwired restaurant locations will have a staying power that a consumer-only model does not.
After a lot of initial angst over what would drive acceptance of the hot-spot model, the focus now seems to be on the delivery of aggregated services.
Boingo Wireless Inc., a leader in that area, built its business around aggregating services through a network of partnerships so that subscribers can wirelessly access the network from any participating providers location. Those services lately are finding their way into bundled service offerings.
“We really think there is a great opportunity for major telcos, ISPs and managed service providers who have existing subscriber bases to bundle Wi-Fi with their offering,” Boingo CEO Dave Hagen told me.
“The only way to go,” analyst Cai said, “is to bundle services and sell to companies instead of directly selling to end users.”
Wayports approach embraces both. So, in saying good-bye to Cometa, we say hello to a business model in the hot-spot arena that may be what the business has been waiting for.