Wireless Business Models Prove Elusive

I just came across an article that talks about the future rollout of wireless networks and how generating profits from these networks is still unclear. This just goes to prove that our esteemed cult leader Clay Shirky is once again on to something -- in his easay Customer-owned Networks: ZapMail and the Telecommunications Industry he delves into the details of how fax machines are a product, not a service:

First of all, Federal Express didn't get that faxing was a product, not a service. FedEx understood that faxing would be cheaper than physical delivery. What they missed, however, was that their customers understood this too. The important business decision wasn't when to pay for individual faxes, as the ZapMail model assumed, but rather when to buy a fax machine. The service was enabled by the device, and the business opportunity was in selling the devices.

He goes on to elaborate how wireless networks are the same deal as fax machines were. And it makes sense -- its amazing how cheaply a wireless hotspot can be setup. Lets say that your local non-chain coffee shop wants to setup a hot-spot -- a DSL connection and a wireless router is all it takes -- and that is less than $500 up-front. The $50 - $100 monthly cost to pay for the service can be covered pretty easily by asking the customers who use the network to donate $1. Not charging for a service will make some people so happy that they will drop more than $1 in the donation box. And, having a free hot-spot will also increase the traffic to your coffee shop, and that alone can go a ways to offsetting the cost to provide the hot-spot.

(Tangent: A few weeks ago I was trying to kill a few hours downtown Palo Alto, and the kind folks at Starbucks informed me that I needed a T-Mobile account to access their wireless network. Not having a T-Mobile account, I walked out purchasing nothing. Two blocks down the street was a local coffeshop with wireless access, and they didn't charge anything. I was so happy, and I went an bought $10 worth of coffee and pastries. More than I was willing to spend at Starbucks.)

I think that wireless networks are inherently community oriented. Good will and a few bucks here and there will have much more impact than rollouts of massive for-profit networks. Random people in neighborhoods of the cities will take it upon themselves to provide network access for the people in the streets below, much in the same way that the Open Source community loves hacking on code without getting paid for it. And as Napster has shown, FREE is hard to compete with.

Thus, the profits for wireless networks are elusive. Good! I think the community itself can provide a better service and at the right price than some draconian corporation who wants to suck on your credit card. Plus with municipalities getting in on the wireless game, its going to be even harder for the wireless corporations to turn a buck.

I think business owners should consider wireless networks more of a loss-leader rather than a source of revenue.

Do you think the wireless service providers are going to make a buck?