Is Free Wi-Fi Good Businesss?
Wi-Fi hotspot service inside fast-food restaurants, coffee shops, book stores-and any other establishment with tables and chairs-has become a standard fare these days. But what isn't so standard is whether customers should pay for the wireless connectivity service or businesses should provide it for free-just like napkins and packets of ketchup.
When looking at four businesses' Wi-Fi business models -- Starbucks, McDonald's, Borders and Panera Bread -- one sees a range of connectivity prices, service and payment methods, and underlying customer-relationship strategies.
Wi-Fi, Pay As You Go and Free
Starbucks still charges by the hour via its new provider AT&T, but loyalty-card-toting customers can now get two hours of free service a day. McDonald's charges US$2.95 for two hours of wireless Internet access through provider Wayport. Borders, via T-Mobile, has varying hourly plans as well as day passes for $9.99. And Panera Bread, in contrast to others, charges nothing to use its hotspots. (Naturally, most businesses serving up Wi-Fi these days also offer deals, tied in with service providers such as AT&T and T-Mobile, for monthly subscription plans.)
Wi-Fi hotspots aren't just confined to retail and coffee joints, however. Hospitals, airports and hotels are three other classes of businesses that offer wireless connectivity in and around their facilities.
Stan Schatt, VP and research director of the wireless connectivity practice at ABI Research, notes in a July report that Wi-Fi hotspots are continuing their "torrid growth" in 2008. According to Schatt's Wi-Fi hotspots forecast, by the end of 2008, global hotspots will have grown by 40 percent over 2007, with much of that growth coming outside of the United States. Right now, according to Hotspot Locations, there are more than 33,000 WLAN hotspots worldwide, and more than 10,000 in the United States alone.
The Business Case for WiF-Fi
The more time customers are sitting at your tables, the more money they are going to spend in your stores. And offering wireless access to the Internet for those customers with a Wi-Fi-enabled laptop or smartphone will add even more sales to the bottom line and make customers more loyal to your brand. That's the theory, anyway.
When asked if Wi-Fi brings more people into businesses and improves customer loyalty, Paula Rosenblum, a managing partner with Retail Systems Research (RSR), says: "Absolutely. Yes. Definitely." Her belief is that "anything that brings customers back to a store" is critical, "whether it's the music, the newspapers or the Wi-Fi-if it's a part of the experience, you'll go there," she says. "Wi-Fi is really a customer-centric practice for businesses."
ABI Research's Schatt is certain that those companies that offer Wi-Fi have completed in-house (and proprietary) consumer studies on whether the service offering is successful or not. ("Everyone would love to have those numbers," he says.) "All you have to do is look at the growth of Wi-Fi at companies like McDonald's, which keep adding Wi-Fi," Schatt says. "Obviously if they felt it was detrimental they would have stopped."
In analyzing the Wi-Fi strategies at Starbucks, McDonald's, Borders and Panera Bread, Rosenblum draws out a couple of themes: "Obviously, it's a part of Starbucks' strategy because it builds community. It's clearly a part of Borders proposition: The longer you sit there, the more books you'll buy. It's a part of Panera's value proposition because I think they'd like to increase average transaction value and get loyalty at the same time."
As for McDonald's strategy, Rosenblum doesn't have an answer. "I've never understood why McDonald's would ever want to offer Wi-Fi," she says. "There's an old saying that you paint these fast-food places orange because it makes people move and makes them not want to stay."
An October 2006 profile of McDonald's emerging Wi-Fi efforts, begun in 2003, noted that McDonald's was "trying to morph from a drive-through to a destination-a place where people go to meet and socialize or play, or even get some work-related e-mail done." Tom Gergets, director of technology and infrastructure for McDonald's U.S. operations, said in the Network World article that "people are using restaurants very differently these days as lifestyles have changed. We've really had to contemporize and create modern, relevant in-restaurant experiences." (Gergets wasn't available for an interview with CIO.com.)
Today, McDonald's has Wi-Fi-enabled more than 15,000 of its 30,000 restaurants around the globe. (To read how McDonald's gets the most from its technology vendors, see "How to Evaluate Vendor Performance.")
"They are very interested in how to draw in the consumer who may not normally go to a McDonald's who's now going to go because they can use a high-quality Internet service, for relatively inexpensive price," says Kevin McKeand, VP and general manager the hospitality, healthcare and retail divisions at Wayport, the third-party infrastructure and applications provider of McDonald's Wi-Fi service. "And while they're there, they're going to buy something. That's the objective."