Blame game starts as Wi-Fi Bubble pops

At least someone is doing Due Diligence

  • alert
  • submit to reddit

Next gen security for virtualised datacentres

A splendid and visceral story by Karen Lowry Miller in the current issue of Newsweek entitled 'The Wi-Fi Bubble' shines an unforgiving light on the public hot-spot mania - and the hypesters responsible for it.

The article doesn't make for uplifting reading, but it is a welcome counter to the juvenilia that accompanies the gushy reporting of Wi-Fi build-out. While no one doubts that 802.11 will form a ubiquitous part of computer communications for the next several years - a standard dongle, if you like - Miller strips away the hype by asking a painfully simple question: "Can you make money from public hotspots?" And the answer seems to be a pile of Emperor's New Clothes.

Where's the beef?
Miller wonders where the revenue stream lies? Can you explain the X for us, nicely and simply on a back of an envelope? See, we're stupid, and just want to know how the numbers add up.

Well, T-Mobile has put T1 lines into 1,500 Starbucks to serve Wi-Fi to Stateside coffee drinkers, and hasn't exactly been richly rewarded. While the odd store in Silicon Valley or Seattle sees good traffic, the US heartland remains supremely indifferent, with dozens of stores able to boast that they've never seen a connection. Best guess industry estimates reckon T-Mobile is losing $10 on every dollar spent (it has to pay that T1 overhead) and that's before revenue-sharing with the coffee chain or supplier. If Deutsche Telecom-owned T-Mobile wasn't already in such financial trouble (there's a fire sale on its GPRS packages right now), this kind of disaster might have provoked a shareholder revolt. 'What were they thinking?' you might ask.

Dire straits

The hype has now got overheated, reckons Gartner, with analyst Jason Chapman predicting that the market is poised to plunge into a "trough of disillusion". And that's one step below a 'slough of despond', as we all know. Or you will know, if you're from Slough.

For all the talk of consolidation between public Wi-Fi ISPs, and between operators, it's not hard to see why the Wi-Fi 'revolution' has failed to be very revolutionary: because very few people have computers and think computer communications are important, and only a small number of those have shiny new Apple PowerBooks to feel giddy about. Maybe Miller is right, and it is these hypesters, who don't leave their houses very often, who are to blame. Maybe they leave their houses so infrequently that they only ever leave when it's time to go to measure up their 'Googlejuice' at a 'Blog-meet' - at which point you know you're investing in a bunch of losers. Capitalism rarely presents us with choices so stark, and simple.

What the hard-headed but naïve VC has ignored is a simple fact: computers are expensive, and hard to use, and messy when you use them, and so you can't honestly ask a friend to part with money to use a Wi-Fi hot-spot no more than you can persuade them to step in a dog turd for a dollar. This market is too sophisticated to fall for such stunts.


And who's to blame for this disaster? Miller reckons she knows who's guilty: "Over the past two years, eager entrepreneurs have hooked up thousands of hot-spots around the world, fueled by venture capitalists afraid of missing the next big thing and egged on by optimistic analysts making the rounds of technology conferences turned pep rallies."

Which is a good observation. Are technology conferences supposed to showcase new technology dispassionately, or hype one or two technologies, let's say 'weblogging' and 'Wi-Fi' to the exclusion of other technologies, which don't fit a narrow ideological agenda? With apologies to the ACM, we can't ever expect dispassionate presentations at any point when technology innovations are showcased. But for those foolish enough to think that attaching importance to a tiny lobby merits worth serious investment, we must point out that there is something called 'due diligence', and it's still a passing obligation for the investor. If you're going to be caught up in such nonsense, it's your responsibility.

'Ah, but isn't Wi-Fi so much more than about public hot-spots?' you ask. Well, the silicon bubble burst earlier this spring, and when market leader Intersil cashed in its chips there was a sign that smart people knew was a good time to get out.

Free to air

Two unconnected events support the idea that there will never be a paying market for public Wi-Fi outside of the captive spots such as airport lounges. The first one is anecdotal. I now have two cafes within three blocks of me that offer Wi-Fi for free. The latest arriviste offers me 5x the speeds I'm used to at home. So naturally, I'm going to sit there all day.

Edge Consultancy released a report on Monday which reckons that profits to free Wi-Fi operators are 533 per cent higher than mugs like Starbucks pay. These guys literally dangle an Airport base station onto a DSL connection they already have, and - bingo! - there's your differentiator. To haul an 802.11 base station onto an existing DSL line costs next to nothing. And everyone's happy. Edge doesn’t address what will happen when everyone cottons on to this idea, but most retailers will not go to such lengths to 'capture' a passing Wi-Fi blogger. Sorry, folks - there just aren't enough of you to make it pay.

So right now, the only people making money from public Wi-Fi are the people giving it away for nothing. And that's a situation that can only last for so long.

Public Wi-Fi is failing for a simple reason: insufficient demand. When walkie-talkie hot-spot 802.x 'phones' come on the market, as they surely will, in 2004-2005, then we'll see if there's a mass-market for Wi-Fi. But to sell such a proposition then, they're going to need a whole new bunch of new post-Wi-Fi evangelists. And where are they going to come from? This bunch is pretty useless at making money for you.

No doubt the bursting of a double bubble makes grim reading for the holders of some capital funds. But all we asked, a few months ago, was for a simple, back-of-the-envelope calculation of how this business could make money. Not a soul could provide an answer, because everyone knows there isn't one.

Which leaves us, come next year, with a lot of useless infrastructure (base stations) and a lot of broken pipes (because with bills not being paid, these base stations aren't going to be connected to anything).

So what are the 'thought-leaders' of the next wave of (cough) wealth going to blog about? I suspect something along the lines of 'we wuz robbed', but let's watch and see.

The Wi-Fi Bubble has been popped, so now we get to see how far and how quickly they scamper. ®

Related Link

Newsweek on the Wi-Fi Bubble

Related Stories

Will the WiFi Bubble hypesters kill WiFi?
Ronald McDonald to save Wi-Fi
Public Wi-Fi has look and feel of a dead duck

The essential guide to IT transformation

More from The Register

next story
Déjà vu: Virgin Media jacks up broadband prices
Screw copper phone lines, we're UNIQUE, bleats telco
UK fuzz want PINCODES on ALL mobile phones
Met Police calls for mandatory passwords on all new mobes
Netflix swallows yet another bitter pill, inks peering deal with TWC
Net neutrality crusader once again pays up for priority access
Fifteen zero days found in hacker router comp romp
Four routers rooted in SOHOpelessly Broken challenge
EE: STILL Blighty's best mobe network, says 'Frappucino' Moore
Fresh round of network stats fisticuffs possibly on the cards here
New Sprint CEO says he will lower axe on staff – but prices come first
'Very disruptive' new rates to be revealed next week
US TV stations bowl sueball directly at FCC's spectrum mega-sale
Broadcasters upset about coverage and cost as they shift up and down the dials
Canadian ISP Shaw falls over with 'routing' sickness
How sure are you of cloud computing now?
UK mobile coverage is BETTER than EVER, networks tell Ofcom
Regulator swallows this line and parrots it back out at us. What are they playing at?
What's the nature of your emergency, Vodafone?
Oh, you've dialled the wrong number for ad fibs, rules ASA
prev story


Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 10 endpoint backup mistakes
Avoid the ten endpoint backup mistakes to ensure that your critical corporate data is protected and end user productivity is improved.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Rethinking backup and recovery in the modern data center
Combining intelligence, operational analytics, and automation to enable efficient, data-driven IT organizations using the HP ABR approach.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.