From today's San Francisco Chronicle
Free wireless a high-wire act
MetroFi needs to draw enough ads to make service add profits
Ryan Kim, Chronicle Staff Writer
Monday, August 21, 2006
It used to be that laptop owners were just tickled to find a free wireless Internet hot spot.
But what was once a freebie limited to cafes, hotels and airports is now spreading citywide.
For that you can thank Google, which earlier this year won a bid with Earthlink to offer free Wi-Fi in San Francisco. The search engine company also started a free Wi-Fi service in its hometown of Mountain View last week.
Its pioneering work has helped highlight a trend within the municipal wireless movement: free citywide Wi-Fi. And no company has done more in this area than MetroFi, a startup also headquartered in Mountain View.
The 4-year-old company, the brainchild of former Covad executives, is aggressively promoting a service in which advertisers pay the bills while consumers get free broadband throughout a wide coverage area.
Industry observers are closely watching MetroFi to see if the free Wi-Fi service will soar or crash, taking the company with it. Critics wonder whether the model can generate enough advertising to turn a profit and whether companies like MetroFi have enough capital to build their networks.
So far, MetroFi has erected a huge network in the South Bay that covers most of Santa Clara, Sunnyvale and Cupertino and includes downtown San Jose -- a contiguous zone that the company says reaches 250,000 people, more than any other single Wi-Fi service in the country.
The company, which has free wireless networks in several areas in San Francisco, is working on a project in Foster City. In addition, it recently won a contract to set up a free network in Portland, Ore., and is preparing to establish a network in Concord. It also has bids out on a handful of California municipal projects, including Sacramento, Riverside and Santa Monica.
MetroFi's network is easy to use. Once users log on, they are greeted by a short ad and then a permanent advertising bar that runs along the top inch of their browser. The ads are swapped regularly and feature promotions from local accountants, car dealerships and Toshiba and Sony. Users can download files at a speed of 1 megabit per second (256 kilobits per second for uploads), which is comparable to DSL and faster than the 300 kilobits per second promised by Google in San Francisco.
MetroFi Chief Executive Officer Chuck Haas said that users can immediately appreciate free Wi-Fi and there's no reason a company can't survive by giving people what they want.
"There is no proven Wi-Fi model yet, but we believe free is the best. Everyone loves free. You don't have to pull out your credit card if you just want to use your laptop," said Haas. "If you're on for an hour at Starbucks, our incremental cost is zero. We may have made only a dime or a quarter off of you, but do that many times and you can see that's a good business model."
The gospel of free city Wi-Fi is finding eager converts. Portland selected MetroFi in part because of its free service. Concord officials said they are offering MetroFi a franchise for the same reason. Silicon Valley leaders, who are trying to build a huge outdoor network from Daly City to Santa Cruz, recently narrowed their list of finalists to three vendors, including MetroFi, partly because they all said they could offer a free level of service.
And in one of the more publicized cases, Sacramento officials reopened bidding for a citywide project earlier this year. They had selected vendor MobilePro to build the network, but said that after seeing Google and MetroFi plans for free service elsewhere, they wanted a free network, something MobilePro said it could not deliver.
"We felt that if other jurisdictions can achieve a perceived higher level of service, in order to really benefit our citizens we should be demanding more of our vendors," said Dean Peckham, senior project manager for Sacramento's economic development department.
MetroFi is already gaining a loyal following. Bill Shafer, a Seattle businessman who was visiting customers in Silicon Valley, recently stopped by a Cupertino Starbucks. After struggling to get Internet access with his paid T-Mobile hot spot account, Shafer went looking for other networks and found MetroFi's system.
"It was the first thing that came up and it had the strongest connection," Shafer said. "It's great. It's free, so I don't have to pay."
Scott Pettersen, a 50-year-old high-tech marketing writer from San Jose, said the advertising is pleasantly subtle and doesn't interfere with his online browsing.
"The ads are not obtrusive, they don't hit you over the head," said Pettersen, who logs on from various coffee shops. "It's subtle so I don't mind."
Gaining popularity
While subscription services are still the rule in most cities and are being rolled out in Philadelphia and Anaheim, some observers said the free movement is likely to be more popular as more cities adopt it. There are about 250 municipal projects under way across the country. IDC estimates the market will grow from $88 million this year to $512 million by 2010.
"If they can do it in Portland, cities will ask, why not here?" said Esme Voss, founder of muniwireless.com. Cities often copy each other's bid requests, she said, so when free service is requested by one, the next city will do the same.
But other analysts say municipal wireless networks are still too new to determine whether advertising can support a free service. Craig Settles, who runs Successful.com, a municipal wireless consulting firm, conducted a survey of 176 businesses in July and found that 57 percent would be unwilling to advertise on free networks. And many businesses said they would be willing to spend less than $100 a month on ads.
"It's not that a free network can't work, but it's more a question of has your city proven its consumers and businesses can support a free network," Settles said.
Godfrey Chua, a wireless analyst at IDC, said it's going to be challenging for companies like MetroFi that don't enjoy brand recognition like Earthlink, which charges for Wi-Fi subscriptions. And, Chua said, the company hasn't reached a position where it can enjoy economies of scale to lower operating costs.
"MetroFi is out ahead of the pack pitching this business model," Chua said. "They're the guinea pig. Whether it works, we'll just have to see."
But Haas, for one, isn't worried. Although he won't share financial or customer information, he said the company will turn a profit soon. It has a stable of more than 100 advertisers who pay between a few dollars and $150 for every thousand consumer views.
Paid service available
In addition to its free product, MetroFi operates a $20-per-month advertising-free service with full customer support, which accounts for 5 to 10 percent of its users.
The company said that it can also make money by turning its city partners into major customers. Portland, for example, said it will pay up to $16 million in the first five years to provide the network for municipal workers.
But ultimately, Haas said, MetroFi will succeed because equipment costs are low and customer-acquisition costs are almost zero because the company doesn't advertise. Unlike traditional telecom companies that build wire-based networks that must be placed underground, Wi-Fi providers can get started more cheaply by placing antennas atop light poles.
And because most customers don't require billing or customer support, the company can concentrate on providing the service without incurring a lot of operating costs.
"If we were DSL or cable, none of those have cost structures that allow you to do it free. Wi-Fi does," Haas said. "The capital is less than the operating expense because you don't have big license fees and no cable or fiber in the ground."
Other companies are taking note of the free trend.
For its bid in Riverside, MetroFi is teaming up with AT&T, one of a handful of partnerships the telecom giant has struck with Wi-Fi providers this year. AT&T officials said they chose MetroFi, in part, to gauge the success of its free service.
AnchorFree, a Sunnyvale company that offers five free neighborhood hot spots in San Francisco, is now making the transition to free citywide projects.
"If you look at the Internet, everything is free. It seems like the new Web is all about that," said Denis Hiller, a spokesman for AnchorFree. "If you give people what they want they will suck it up and generating money won't be an issue."
MetroFi has big plans
The Mountain View Internet provider operates free wireless broadband services that reach 250,000 people in the Bay Area, including Sunnyvale, Santa Clara, Cupertino, downtown Concord, downtown San Jose and select hot spots in San Francisco, such as the Civic Center, Ferry Building and Portsmouth Square in the Financial District. It is setting up free wireless networks in Foster City, Corona (Riverside County), Ontario (San Bernardino County), Portland, Ore., Aurora, Ill., Naperville, Ill., and Plano, Texas.
E-mail Ryan Kim at rkim@sfchronicle.com.
