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Weekly Column

For love not money: How WhyFi can turn hotspots into a real industry

Status: [CLOSED]
By Robert X. Cringely

WiFi -- 802.11b, -a, and -g wireless networking -- is the big Internet success story of this decade. It's successful because it is simple, cheap, and unlicensed. And that lack of a required license is taking WiFi places nobody ever expected it to go. How could a local area networking technology, for example, compete with and even threaten such entrenched (and licensed) technologies as mobile and wired telephones and even broadband Internet? It's not because WiFi is so good but because it is so free of restrictions that we can turn it into whatever we want. And in this case "we" means just about anyone. But the big money lately seems to be going into WiFi hotspots and hotspot aggregation. And as promised last week, I think the current aggregators are going about it all wrong.

WiFi aggregation, as it is currently practiced, involves linking together loose networks of hotspots for which subscriptions are sold so that folks like you and me can check our e-mail and surf the web in airports, hotels, and coffee shops around the country and around the world. Rather than joining each hotspot individually, we join networks of them, paying more and getting more. Some aggregators, like T-Mobile in the U.S., own their hotspots but most don't. The best known aggregator today is probably Boingo and the best funded is Cometa Networks, a partnership of Intel, AT&T, and IBM that is investing hundreds of millions of dollars with the idea of creating a nationwide hotspot network.

The first problem that all these aggregators have is the existence of the others. The more aggregators there are the less likely is the next hotspot you find going to be part of the network you are paying for. For WiFi to really succeed it would be nice if there was just a single aggregator, but that's not the way things work in a market economy. So the aggregators are fighting it out to see which can offer the least mediocre service. Not the best service, just the least bad.

Some of these aggregators are pretty big or seem so. Boingo, for example, claims to have a network of 5000 hotspots. IPass, another aggregatgor that works slightly differently from Boingo, (iPass is effectively an aggregator of aggregators) claims 2800 hotspots. Intel is aiming to eventually have as many as 20,000 hotspots. These numbers sound like a lot but they really aren't. The average number of simultaneous users for a public hotspot is hardly ever more than 10 so Boingo probably has the capacity for at most 50,000 simultaneous users which isn't much compared to the 30+ million AOL members. On a good day a hotspot also covers about an acre meaning that iPass is effectively serving 2800 acres, Boingo 5000 and Intel has dreams of serving up to 20,000 acres. Just for comparison purposes, the United States is composed of approximately 1.9 BILLION acres so even if Boingo, iPass, and Intel were all working together their service areas would consist of less than one hundredth of one percent of the U.S. land area.

But a few thousand acres can be plenty if they are the right acres which is why the hottest spots are in places like airports and train stations where tens of thousands of potential customers are available each day.

Frankly, though, I think the current efforts are misguided and pathetic. I don't want 20,000 hotspots in my network, I want at least one million. The current aggregators would like that kind of number, too, but they can't think how to achieve it. I think I have figured it out and am happy to share my idea. If any reader runs with it and makes a fortune, don't forget me, okay?

The current model for hotspot aggregation is based on revenue sharing. I own one or a hundred hotspots and join the Boingo network, for example. Boingo provides software and backend services to allow its subscribers to log-on to my hotspot, sharing with me some of that revenue based on usage with Boingo keeping a commission on every transaction.

Thinking in commercial terms revenue sharing seems to be the only way to go but I feel it isn't. I think the revenue sharing model of these outfits is precisely what's holding back WiFi from being an even greater success. The problem is that the revenue potential of such a business is minimal. There just isn't enough reward for anyone and I can't see that this fact is going to change for any reason.

So we need to come up with a better alternative to revenue sharing as a raison d'etre for our aggregation business. But that's not all we have to change. The current national WiFi networks are so small in part because of the arduous means through which they come into existence. By this I mean that hotspots first have to exist in order to be aggregated, which is a steep barrier to entry. I think the hotspots should be first aggregated and THEN exist. That way, rather than hoping for some small percentage of hotspot owners to join a network hotspots can be generated where they are needed, not just where they happen to exist.

The key here is getting away from revenue sharing and to explain how that can happen I want to give an example from a completely different kind of business. A good friend of mine runs an online business called AC Chase, which sells nice but inexpensive jewelry over the Internet. As always, I have no ownership or business connection to the company other than knowing the founder. The jewelry sold by AC Chase is used on popular television shows in the U.S. and that's the attraction: you can order the exact necklace worn by your favorite actress on your favorite show. And the number of shows is staggering or at least it seems so to me. AC Chase sells jewelry worn on about 40 primetime network shows including big ones like The West Wing, ER, Ed, Law & Order, and 24. If you liked that bracelet you saw on Buffy the Vampire Slayer or Charmed, you can probably find one exactly like it at AC Chase.

Normally signing up that many shows would be a huge negotiating task because you'd need to get a license from each one and split the revenue in 40 or more shares. And that's the way AC Chase began, only to learn that the producers and networks simply couldn't be bothered with such a negotiation. It wasn't worth the cost of the lawyer time required to do the contract. That lesson almost killed the company before it got really started and it surely would have killed most startups. But AC Chase took a new approach and quickly signed contracts with all those shows not by dealing with the networks or producers but with the show costume designers. There is no revenue sharing but the company gives jewelry to the shows for free which helps the costume department budgets. And by working closely with the costume departments AC Chase designers can produce just the kind of look each show wants for its characters. It is a symbiotic relationship that has allowed one little company to thrive.

Yeah, but what does that have to do with WiFi hotspots? Well hotspots, too, can be symbiotically successful without any revenue sharing. And if carefully done this process can easily lead to one million hotspots in a network, not 20,000.

Here's how the process works. I call it WhyFi. First we need to encourage what are essentially noncommercial hotspots and we do that not by revenue sharing but by providing free equipment. Anyone who wants to start a hotspot gets a free WiFi access point and a free WiFi client card for a notebook or other computer. Since all the hardware is identical this makes building and maintaining a network much easier. If you want to be part of the WhyFi network, you have to accept WhyFi equipment.

The only thing that makes WhyFi hardware any different from what you could buy at CompUSA is slightly different firmware. This firmware establishes for the hotspot owner a DMZ in which the public traffic is contained as well as a RADIUS function required for network authorization. Public traffic can consume up to 100 percent of available bandwidth but availability is defined by what isn't being used by the hotspot owner. The result is you can run a hotspot without having to endure any sort of performance hit.

The WhyFi card also contains different firmware that establishes similar DMZ and RADIUS functions though in this case they operate in an ad hoc network around your notebook or dektop.

Your incentive to operate a WhyFi hotspot is free service for you when you leave home. The hardware and software are free. There is no performance hit. And your WhyFi card gives you free unlimited access to the entire network through MAC address filtering. So while you don't make any money from the WhyFi network it also doesn't cost you anything to belong.

Right now many readers are thinking that most ISPs frown on hotspots and connection sharing. That's true but they also function in a competitive environment such that I don't think any major ISP could make stick such a prohibition if there was widespread cheating. The key here is those one million hotspots. Make enough "illegal" hotspots and competitive pressures will result in changing the rules to allow them. Speakeasy is a national broadband ISP that already allows connection sharing and I'm sure there are others. If your ISP kicks you off, just go to Speakeasy or one of the others. After awhile your ISP will get the message.

Because there is no revenue sharing the software to manage the WhyFi network can be much simpler. Because the hardware and service are free to hotspot owners there is likely to be great demand leading to those one million hotspots. Because of the great number of hotspots the equipment to set them up will cost much less. The real revenue, which isn't shared with anyone, comes from subscribers who DON'T sponsor hotspots. And even the free subscribers don't present a burden on the system because each of their WhyFi cards extends the hotspot they are connected to by building a little ad hoc WhyFi access point of its own.

Note that what I propose is simple technology. No mesh networks here. Not that I am opposed to mesh networks but I doubt that even WhyFi would reach the kind of density needed to make that concept work.

When it is finished the WhyFi network would have one million hotspots and hotspot extender cards, 30 million paying subscribers, and be comparable in revenue and network impact to an AOL while being substantially more profitable than AOL has ever been simply because there are no network costs at all. And the Boingos, iPasses and Cometas -- the first generation WiFi aggregators -- would be forgotten.

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