Cafenet News

How WhyFi can turn hotspots into a real industry by Robert X Cringely

15 January 2004

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.