Study questions Wi-Fi business model

The Wireless LAN (Wi-Fi) hotspot industry could go the way of the dot.coms, unless there is grassroots market acceptance of this technology, according to a report this week by Tempe, Arizona-based electronic research firm, Forward Concepts.

Although the Wi-Fi hotspot "land-grab" is in full swing, only a few venues will be profitable, added the report, titled "Wi-Fi Hotspot Opportunities: Exploiting the New Phenomenon".

"We see the emergence of hotspots as almost a textbook case of effective repurposing of technology, but a closer look reveals some troubling deficits in the market thus far," said Daniel Sweeney, the author of the study.

"In most cases where repurposed technology has succeeded in a big way, such as the Internet, it has exhibited a strong grassroots component in terms of the user base," Sweeney said. "In hotspots, to date the grassroots aspect of the phenomenon resides in the service providers themselves, which are often very small, single-location businesses linked in a franchise arrangement with a hotspot aggregator or platform developer."

Unless hotspots inspire a similar degree of enthusiasm among subscribers, the same fate could befall the hotspot industry as befell e-commerce at the turn of the millennium, where similar vendor enthusiasm far outstripped market acceptance, Sweeney added.

A "land-grab" frenzy will propel the U.S. hotspot market to grow by an estimated 46,000 new locations this year, according to the report. By the year 2004, on the other hand, there will be a dramatic slowdown in the creation of new hotspots, as the industry seeks to identify appropriate applications, content, and terminal designs for existing capacity. The report predicts that growth in the number of hotspots will return in 2005, and by 2007 there will be some 530,000 hotspots in the U.S.

The report also predicts that in Europe almost 800,000 hotspots will be installed by 2007, while in Asia, by even the most pessimistic estimates, there will be over 1 million hotspots by 2007. A more optimistic estimate places that figure at almost 4 million by that year, according to the report.

Revenue from hotspots in the U.S. is forecast by Forward Concepts to be $8 billion by 2007, working out to about $15,000 per hotspot. At such revenue levels, margins will be tight, and profitability for the industry as a whole is contingent upon the lowest possible infrastructure costs, which will force service provider incumbents to re-evaluate their business plans, according to the report.

There will be winners and losers among the hotspots depending on the kind of venues in which they are located. Various venues will have different profit potentials and liabilities, according to the report. The average for hotspots in the U.S. is estimated to be about 190 sessions per year, with a disproportionate share going to business hotels and major airports.