Wi-Fi's Business Model: Not What Was Expected

New technologies sometimes wind up being used in ways not originally envisioned. It might sound odd today, but there was a time when public Wi-Fi was seen by some as a replacement for fixed broadband used by residential customers, or as a competitor to wireless 3G networks.

These days, with a couple of notable exceptions, public Wi-Fi lives by indirect revenue models. It is an amenity for retail or hospitality operations that make money some other way. Coffee, food, lodging or memberships are some of the revenue models.

The notable exception is "for fee" Wi-Fi in global markets where the cost of 3G access is very high, making a for-fee Wi-Fi connection a better deal.

In recent years, the typical revenue model for public Wi-Fi has been that it is a valuable amenity for sales of fixed broadband connections and retention of customers. More recently, public Wi-Fi has become an important component of the value of some smartphones, which can use hotspots for VoIP even when it is not allowed on the 3G networks.

AT&T, for example, says that its customers made 25.4 million Wi-Fi connections in the third quarter of 2009, exceeding the 20 million connections made in all of 2008 and nearly equaling the 25.6 million connections made in the first half of 2009.

Wi-Fi usage has been increasing significantly each quarter, up from 5.2 million connections in the third quarter of 2008. Smartphones and other Wi-Fi enabled devices are the reason, AT&T says.

For the first time, the number of Wi-Fi connections made by smartphones and other mobile devices in the third quarter surpassed connections from laptops, AT&T notes.

About 60 percent of all AT&T Wi-Fi connections were made from mobile devices, up from 49 percent in the second quarter of 2009, AT&T says.

Public Wi-Fi seems destined to play a bigger role in the smartphone market going forward, as it is a great way to offload video and other bandwidth-intensive applications from the mobile network to the fixed network.

So aside from its value as a feature that supports an indirect revenue model for retailers, it is a value-enhancing way for service providers to differentiate and add value to their mobile and fixed broadband services.

In the future, it likely will assume a greater role in allowing mobile networks to better manage bandwidth. None of those initially were thought of as the "value" of public Wi-Fi.

Amazon Integrates Twitter

It increasingly looks as though Twitter's business model will rely, in large part, on marketing services of various types.

A recent study by professors at Penn State University found that 20 percent of tweets contain requests for product information or responses to the requests, says Jim Jansen, associate professor of information science and technology in the College of Information Sciences and Technology at Penn State.

Separately, Amazon.com has introduced a new feature that allows Amazon Associate members to broadcast links to Amazon products via their Twitter accounts.

Amazon Associates is the partner program the company uses as part of its affiliate advertising programs, allowing customers to make money advertising Amazon products.

Associates can now simply click a link in the toolbar to send a link and text to Twitter as part of their shopping and selling experience. Amazon gets a sale, Twitter gets traffic, and the associate gets revenue share.

Smartphones are Changing the Wi-Fi Hotspot Business

Smartphones are changing the nature of the hotspot business, it now appears. Originally envisioned as a way to provide "outside the home" and "outside the office" connections for laptop and notebook PC users, hotspots now are becoming important sources of broadband connections for smartphones.

One example: iPass, which used to focus on managing PC authentication processes for traveling enterprise workers, now finds it is focusing more attention on managing authentication processes for enterprise smartphones, says Rick Bilodeau iPass VP.

"Smartphones are the new thing," he says. "Now it is smartphones and Blackberries." The software is available for BlackBerry, Symbian and iPhone at the moment, and iPass is watching the Android, though it hasn't seen enterprise demand for that device yet.

As a firm that manages broadband access for hundreds of Fortune 2000 companies, iPass has to manage connections created on hundreds of global networks, but now scores of smartphone devices as well.

To make that process easier, it created an "Open Device Framework," a standardized interface to iPass client software that allows enterprises to write their own XML scripts for the specific dongles, phones and other devices they want to support.

The company also now preconfigures Mi-Fi routers, loading SSID information directly into the boxes before they are delivered to their users, for example. The iPass log-on software also can be preloaded. "We're first to do this, we think," says Bilodeau.

ODF is available now and the Mi-Fi featuers will be available in December 2009, he says.

BlackBerry and iPhone Users are Different, Just Not Wildly So

BlackBerry users are different from iPhone users, a new study by Retrevo Gadgetology suggests. Some of the differences are amusing, perhaps intentionally so, as the questions asked of younger BlackBerry and iPhone users included some that observers might find frivolous, or intended to evoke humorous responses.

Apple iPhone say they find cool gadgets, “most attractive,” about a person, in fact, three times more than they find a college degree attractive.

BlackBerry owners think a college degree is more attractive than the mobile device they use.

About 34 percent of iPhone owners and 29 percent of BlackBerry owners think old gadgets on a potential partner are a turn off. Some 33 percent of iPhone owners say they have broken up with someone  using text messaging, compared to 22 percent of BlackBerry users.

A quarter of iPhone users say they have broken off a relationship because their partner spent too much time on their mobile, compared to 17 percent of BlackBerry users.

The Retrevo Gadgetology report surveyed 445 iPhone and BlackBerry owners distributed across gender, age, income and location in the United States.

"Surprising" AT&T Stance on Net Neutrality?

Some people might be shocked to learn that AT&T complies with existing Federal Communications Commission rules. Some people might be shocked to learn that AT&T actually already agrees that "best effort" Internet services ought to treat every packet the same as every other.

“We use the principle of ‘us on us,’” says AT&T  CTO John Donovan. “If we take an external developer and ourselves, we should not be advantaged in how long it takes or how much expertise is required."

"I don’t think it needs to be that complicated," he says. Does any application run by any third party work as well on the network as an AT&T-provided application?

"Outside applications need to be on an equal footing with our own applications," Donovan says.

But that's part of the problem with net neutrality. It is very hard to define and covers a range of business discrimination issues, network management and performance practices as well as potential future services that consumers might very well want to buy, that provide value precisely because they allow users to specify which of their applications take priority when the network is congested.

As a working definition, net neutrality is the idea that ISPs cannot "discriminate" between packets based on the owner or sender of packets, or on the type of lawful application, or block lawful packets.

The latter principle already applies to fixed broadband access connections, and the new change might be the extension of such rules to wireless providers. What is "new" in the current net neutrality debate is that concept that no packet can be afforded expedited handling, compared to another.

At some level, this is common sense. One wouldn't want video packets or voice packets sold by a third party to be disadvantaged, compared to video packets sold by the Internet access provider, for example.

But that isn't the issue in the current round of discussions and the possible FCC rulemaking. The issue is more an issue of  whether "affirmative" packet handling, as opposed to "negative" packet handling, will be lawful in the future.

"Negative" packet handling is sort of a "thou shalt not" approach: application providers should have a reasonable expectation that their best-effort Internet traffic will be handled the same way as any other application provider's traffic is treated. So ISPs "shalt not" provide any quality-of-experience advantage for their own application bits, as compared to any other bits delivered over the network.

All that sounds fair and reasonable, and in fact ISPs (after a few notable cases of interference), have concluded it is not worth the public outrage to block or delay any packets to heavy users, even when networks are congested, for the purpose of maintaining overall user experience for all the other users.

But there are several issues here. Good public policy would forbid business discrimination, a situation where any ISP could attempt to favor its own applications over those provided by its competitors. Back in the "old days," an example might have been a refusal by one telephone company to deliver calls from a rival.

But the network neutrality debate is far more complicated than that. There is a broad area where network management policies designed to maintain performance might be construed as business discrimination, even when the purpose is simply to protect 95 percent of users from heavy demand created by five percent of users.

Under heavy load, real-time applications such as video and voice suffer the most. So either end users might want, or ISPs might prefer, to give priority to those sorts of applications, at peak load, and slow down packets less sensitive to delay.

The problem with crudely-crafted net neutrality rules is that they might make illegal such efforts to maintain overall network performance for most applications and most users. One can hope that will not be the result, but it remains a danger.

The other issue is creation of new services or applications that can take advantage of expedited handling. Users might want their video or voice packets to have highest priority when there is network congestion. Crude net neutrality rules might make that impossible. But one can hope policymakers will take that sort of thing into consideration.

Net neutrality is a very-complicated issue with multiple facets. Ironically, end users might, in some cases, actually want packet discrimination.

More U.K. Mobile than Fixed Broadband Users in 2011?

More people will use mobile broadband rather than fixed line broadband by 2011, mobileSquared predicts. It's the sort of shocking prediction that makes for a great headline, but also is misleading. The forecast, for the U.K. market, might lead one to conclude that users are disconnecting fixed broadband lines and using mobile instead.

But that is not what the forecast assumes. Rather, it primarily assumes continued growth of smartphone connections.

By 2011 the number of active 3G "smartphone" type devices in the UK will be 36.3 million. There also will be 6.4 million dongles and embedded devices in use, taking the total number of mobile broadband connections to 42.7 million compared to a base of fixed broadband connections of 42.5 million, mobile Squared projects.

To be sure, over time there will be more Internet access occuring from broadband-capable smartphones.
The firm estimates that between one percent and 10 percent of enterprise Internet traffic is already being generated from a mobile device, for example.

But most observers, and most users, likely would say that mobile broadband and fixed broadband are complementary, more than substitutes.

That noted, the application profile for mobile broadband likely will be distinctive. “Mobile will become the primary access point for brands and businesses communicating with its consumers within two years,” says Nick Lane, mobileSquared chief analyst. “Mobile is always-on, and the average user carries their device for an average of 16 hours a day. So if a company or brand is not already considering how to use mobile, then they need to because their customers are.”

As the typical mobile "phone" becomes a multi-purpose broadband device, it will be used for Internet applications. That is not to say the typical smartphone will replace a PC, or a fixed broadband connection. The application profile and mode of use will start to overlap. But each mode will retain key advantages for the bulk of usage. People will talk more on their mobile phones than on their PCs.

They will engage in research, document, calculation or process intensive operations, plus most long-form TV, on a PC or a notebook equipped for broadband access. But people will rely increasingly on their mobiles for social networking updates, location-related apps, real-time information and brief entertainment episodes, and sometimes for long-form video.

The point is that mobile broadband now consists of two distinct segments: smartphones and PC dongles. And while both overlap at times with fixed broadband, they are distinct. Wireless broadband used to connect PCs generally is a complement to fixed broadband access, not a substitute, though that will happen at times.

So the mobileSqured forecast, which essentially lumps all smartphone data accounts with PC dongle accounts to reach the conclusion that mobile broadband will be a bigger business than fixed broadband, is correct in one sense, but wrong in another. In fact, all forms of broadband access are increasing.

Order of Magnitude Increase in Mobile Bandwidth by 2015

U.S. mobile carrier traffic reach 724 TBytes per month in 2015, up from 15 TB per month in 2009, says Coda Research Consultancy, an overall compound annual growth rate of 90 percent. As you might expect, video is behind the sharp rise, growing 104 percent.

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In fact, by 2015, video is forecast to represent about two thirds of all traffic, or 459 TB a month, Coda Research says.

That could be a problem. Sprint and Clearwire, for example, argue their new WiMAX networks will provide three times to five times the bandwidth of 3G networks. That's all well and good, but this forecast suggests aggregate demand will grow 10 times from present levels.

Several issues: is there enough spectrum to handle all this growth? What is the cost of upgrading facilities, even if there is enough spectrum? Is there any video revenue model that pays for the investments? Will the mobile regulatory framework provide incentives or disincentives for investment?

Those are the big challenges. But the report has other nuggets for some parts of the mobile ecosystem.

Handsets will drive 68 percent of mobile carrier traffic by 2015, while netbooks will represent 14 percent.
Coda also estimates that mobile ad revenues will total $5.05 billion in 2015.

By 2015, mobile data revenue will grow to 47 percent of mobile service provider revenues, while voice generates 53 percent of revenue. This last prediction is important, as it suggests how and when mobile service providers will cope with the ultimate shift away from mobile voice business models.