Greater spotted potential
With hotspots cropping up all over the country mobile computing can be an opportunity for location owners and the channel alike
Many business people spend much of their time away from the office, yet they are pathetically dependent on their email, company networks and the internet.
What they crave is the ability to sit down in the cafe/train, station/hotel or lobby/fitness centre, whip out their computer, connect to the internet via a Wi-Fi link, and surf the web or access their company's systems via a VPN.
That, in essence, is what a hotspot does, and it could enable travelling knowledge workers to put in an extra half an hour a day of productive work, according to analyst Gartner.
All the user needs is a Wi-Fi-enabled notebook or PDA. More than half of professional notebooks will be Wi-Fi-enabled by the end of the year, says Gartner, and the increasing availability of wireless-enabled PDAs will further broaden the technology's appeal.
All the location needs is a few hundred pounds-worth of Wi-Fi router linked to a broadband internet connection. Hotspots are being installed at a bewildering array of locations; they seem to be anywhere business people pause to draw breath in their increasingly frenetic lives.
Starbucks has more than 150 hotspots, Texaco more than 100 (complete with 'dedicated surfing bays' where drivers can hook in without leaving their BMWs). Hotspots are being trialled in courts and were used at this year's London Fashion Week, while the CeBIT trade fair became the largest hotspot in Germany.
Locations within office buildings can be served by hotspots, and retail stores, warehouses and industrial sites could also benefit from 'walk-up' networking.
The market appears to be on a roll. According to Intel, there are nearly 7,500 hotspots in the UK, almost 1,000 of them in London, making us one of the spottiest nations in the world.
The number of hotspots in Europe nearly doubled in the first half of 2004, according to IDC, while fellow analyst In-Stat/MDR expects worldwide numbers to grow from 43,850 locations in 2003 to more than 200,000 by 2008.
Analyst Gartner estimates that the number of users worldwide will treble this year to 30 million, while hotspot vendor The Cloud is seeing 20 to 30 per cent growth in use, month on month.
Perhaps more significantly, hotspot revenue is also increasing. "While revenue in previous years was relatively small, the market is finally maturing. There is significant revenue growth as a result of this," says In-Stat/MDR. "[Hotspot providers] are seeing the revenues that legitimise the market."
With the market simultaneously growing and consolidating, it sounds as though resellers can make potential location owners an offer they cannot turn down. For starters, there is the opportunity for location owners to invest in IT that improves their service offering, while actually making a profit from it.
"There has never really been a proposition like this before: one that will enable the end-user, not just the reseller and the vendor, to make money," says John Carter, managing director of broadband distributor DMSL.
To date, the most widespread business model has been for a telco or mobile phone operator to supply and maintain the hotspot kit and connection, take the revenue stream from the users and give the location owner a cut. This means paying commission for the use of the premises.
"The sales pitch should point out that a good hotspot service provider will take over the management, technical support and billing, and pay a revenue share to the site owner," says Sonny Waheed, marketing director at The Cloud. "This allows the owner to get on with its core business while providing a service for its customers."
A variation of this is for the service provider to charge the location owner a monthly fee. Hotspot vendor 3Com believes landlords will be prepared to pick up the tab, offering customers free internet access as an incentive to stay longer, perhaps by loaning them notebook PCs to surf on.
But rival vendor Funkwerk, which trades under the Artem brand, warns that location owners will want to charge customers to recoup their outlay, and may set the price so high that customers will be put off.
The alternative business model is for the location owner to buy the hotspot outright and take the revenue itself. A cafe-sized 'hotspot in a box' can retail for as little as £400. The purchase model requires more work from the owner - or its reseller partner - but gives it greater control and potentially higher revenues.
Apart from the potential revenue stream, the other key selling point for hotspots is the potential effect on the location owner's core business. Either the presence of a hotspot is a business differentiator, encouraging more customers onto the premises and giving them an incentive to stay longer; or the absence of a hotspot is a disadvantage, making them go elsewhere.
Which version resellers use in their sales pitch will depend on how they - and, just as importantly, their customers - read the market.
"The key to a successful sale is establishing the nature of the business and the type of trade the site attracts," says Rakesh Mahajan, general manager of marketing and strategy at hotspot vendor BT Indirect Channels.
"If the business is reliant on customers spending time on the premises rather than on passing trade, resellers will be able to build a strong business case for wireless connectivity.
"Business people or road warriors actively look for food haunts where they can wirelessly access the internet, email and corporate networks. Once online, a user is also more likely to spend more time on the premises, bringing in revenue for the owner."
The arguments apply not just to leisure establishments but also to business venues. Reseller and systems integrator Telindus is focusing on the corporate hospitality market.
"Locations such as stadiums, conference venues and universities will be the main hotspot locations," says James Walker, solutions manager at Telindus. "Wireless is becoming an assessment factor when choosing a venue and getting revenue from delegates."
In the early stages of the hotspot market much of the business bypassed the channel, as telcos and mobile phone giants signed up customers directly. But there are signs that vendors' attitude is changing.
"Hotspot vendors were initially reluctant to work with the channel, wanting to keep pockets of users to themselves," says Doug Loewe, managing director of comms aggregator iPass. "But they're slowly realising that through resellers they're able to leverage and attract other communities."
Kevin Vine, director of networking services at distributor Ingram Micro, says: "A high proportion of the hotspot market still bypasses the channel, but resellers targeting vertical markets such as retail, leisure and catering are now generating more interest from vendors."
In August, 3Com signed deals with six gateway vendors (Aptilo, IP3, Nomadix, PatronSoft, Pronto and SolutionInc) to create complete pre-packaged public wireless LANs for the channel to sell into the hospitality industry.
"These alliances are designed to create not only opportunities for our tier-one system integrator partners, but also tier-two VARs that want to be able to offer framework hotspot packages," says Brent Nixon, 3Com's director of enterprise wireless product management.
As well as needing their help to reach new markets, vendors are starting to rely on resellers' independent status.
From the end-user's point of view, a big drawback of the early hotspot business model - operated by individual telcos as adjuncts to their own broadband networks - was that users might find themselves paying a different service provider every time they used a different hotspot.
Pay-as-you-go hotspot use tends to be expensive, as well as being troublesome for corporate purchasing departments. Staff pay for their hotspot use out of petty cash, instead of having cheaper, more controllable contracts.
According to research by Quocirca, 86 per cent of firms that see a need for multi-network access believe there is a risk of cost escalation if users are left to make their own decisions on how to connect.
The solution to this has been to introduce roaming agreements, under which contracted users can use any hotspot, and hotspot operators can offer access to any user. Several roaming providers have entered the field, including GoRemote, RoamPoint, T-Systems and WeRoam.
This opening up of the market will work in the channel's favour, Walker believes.
"Customers want a trusted advisor and neutral party," he says. "They're less willing to hand hotspots over to a single network provider, which means vendors are becoming increasingly keen to work with resellers and integrators."
Revenue models from vendors include commission on the sale of the box and a share of usage revenues. According to Mahajan, hotspots can either be a standalone sale, or a value-add to a broadband sale.
"If a reseller has identified the need for broadband in a small restaurant for chip and PIN use, there is also a potential opportunity to sell an Openzone in a Box [BT's hotspot package]," he says.
Nixon suggests wireless switches sold as Wi-Fi access points will open the door to wireless voice over IP, and In-Stat/MDR sees voice as the next big thing in the hotspot market.
And hotspot offerings could 'seed' sales of mobile connectivity products and services. "There are bound to be spin-off sales of wireless cards and portables with the technology built in, and users will need help in turning the technology on and getting it working," says Carter.
Nixon says: "Wireless networks offer an excellent opportunity for the channel to deliver value-added services. They are often used alongside core activities such as sales or customer service, and can require complex integration with core back-end systems [such as billing] across multiple network infrastructures.
"This is a challenge that in-house staff are hard pushed to meet."
Resellers with hotspot ambitions are likely to face increasing competition.
"More and more resellers, particularly those with a particular vertical market focus, are now tuning into the idea," says Vine. "Resellers will need to act quickly, because awareness is growing and soon everyone will be looking to grab their piece of the pie."
But Vine adds that selling hotspots is no picnic. "The sales pitch is still relatively labour-intensive. Awareness levels are still patchy and many customers will need to be educated on the benefits of providing this kind of service," he says.
And in many ways that is the easy bit. As we have seen, a good business case can be made for location owners to install hotspots. It increases revenue and footfall, drives core business sales, differentiates them from or helps them keep up with competitors. The real issue is persuading the customers to use them.
According to IDC, while hotspot numbers continue to climb, interest in using them remains low. An IDC survey of European business travellers found that while just over half were aware of hotspot services, only eight per cent were very interested in using them.
"If operators want their corporate customers to adopt these services, they will have to educate them about the business advantages they can bring," says Evelien Wiggers, senior research analyst at IDC.
Performance can be unpredictable. Loewe says: "Some locations are robust and can support high-end applications, VPNs and firewalls. However, there are some tier-two hotspots whose back-end connection to the web is pinched to unacceptable bandwidth levels."
Hotspot security has been beefed up with the advent this year of the WPA (Wi-Fi Protected Access) standard. If properly set up, security should not pose any major problems, but it remains a concern.
"Manufacturers all say security was an issue but is now under control. I'm yet to be convinced that customers are certain enough at this point to make wholesale changes, though," says Nadahl Shocair, chief executive of comms reseller DeTeWe. "They still view security as a risk, which is a problem for resellers."
Alan Kennet, managing director of Colt Telecom reseller ISrighthere, says: "Our experience in the hotel industry shows that 80 per cent of people still want fixed connectivity. Security is key, but people also want privacy to work on sensitive information. In public places other people will snoop."
This highlights the central issue for hotspots - that they will only ever form a part of the solution for mobile workers. Research from Quocirca found that 83 per cent of companies with experience in the field believe users will sometimes need to use different connectivity options (GPRS, 3G, hotspots) at different times, depending on the situation.
Most businesses said they would even prefer a single supplier combining cellular and hotspot data access.
GPRS is almost ubiquitous, fairly cheap, but very slow. 3G promises faster data speeds, but at higher cost and with more limited coverage. Hotspots offer small pinpoints of very high-speed access. This is handy if you are sitting within range, but hotspots are still quite few and far between.
Different charging models (by connection time for hotspots, by data volume for 3G and GPRS) may also mean that for small data volumes, 3G or GPRS will work out cheaper than hotspots.
"Wireless will work in harmony with GPRS and 3G," says Walker. "The best available technology will become the norm."
The next step, he adds, will be 'hotzones', using Wimax technology to provide up to 74Mbps access over miles rather than metres. This, no doubt, will pose yet more challenges.
CONTACTS
3Com (01442) 438 000
www.3Com.co.uk
BT Indirect Channels
www.bt.com/indirectchannels
The Cloud (020) 7467 6410
www.thecloud.net
DeTeWe (01442) 345 600
www.detewe.co.uk
DMSL (01708) 756 555
www.dmsluk.co.uk
Funkwerk/Artem (01420) 561 207
www.artem.de
Ingram Micro (01908) 260 160
www.ingrammicro.co.uk
iPass (020) 7317 4400
www.ipass.com
Isrighthere (08707) 128 700
www.isrighthere.com
Telindus (01256) 709 200
www.telindus.co.uk