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Will Lodgers StayOnline?

WiFi hotspots are hot these days and hotels are hot spot hotbeds as we saw in our recent look at of lodging industry Internet systems integrator RoomLinX of Vancouver, Canada.

The old model of third parties installing high-speed wired or wireless Internet networks in hotels and then sharing revenues from guest fees with the hotel is dead as a doornail. Just ask pioneers like Darwin Networks -- which is currently deader than a doornail.

However, being able to read the large-type writing on the wall and moving to a hotel-pays business model, as RoomLiNX did, may not be enough on its own to win in the still competitive hospitality industry high-speed Internet sweepstakes. There are lots of fish in the sea for hoteliers looking to install wireless neworks. We talked to one recently: Atlanta-based StayOnline Inc., the former e-Centre.net, a company originally launched in 1999.

StayOnline currently has installed access in 35 hotels, expects to have 70 in by the end of May, and "a couple of hundred" by the end of the year. Recently announced deals with small, boutique-y hotel management firms -- The RIM Corp. of Modesto CA, with just under 20 properties, and Atlanta-based Noble Investment Group, with 23 -- have StayOnline on a roll.

Earlier this year, the company announced that Toronto-based multi-brand management firm AFM Hospitality Corp. had selected StayOnline as its exclusive provider of high-speed wireless Internet systems. AFM has 170 hotels that it operates itself or through franchise agreements.

StayOnline president and co-founder Antonio Di Milia says the company's success to date is the result of slowly and patiently developing an offering that responds to the needs of the industry, and building a business infrastructure that lets it service properties across the country.

Make no mistake, the lodging industry market is a dog fight and StayOnline is by no means alone. Its candid and blunt assessments of competitors give you a clue of just how tight a market it is. There are, after all, only a finite number of hotels out there to install.

"Our competitors are not there yet," says Di Milia. "They're mostly young companies, under funded. They're trying to do cheap, thrown-together solutions. Some of the others, the older ones, are married to wired solutions and they're struggling. A lot are struggling."

When we ask director of marketing Mike Henderson what differentiates StayOnline from others such as RoomLinX, he doesn't hold back. "Ours stuff works," he says. Then he backs off a little. It's not "flat out" that the competitors' technology doesn't work, he says. "It's just that ours works all the time -- and better."

"We've spent an enormous amount of time engineering and customizing -- not just for each [hotel] brand, but for particular buildings. Our install process is exteremely detailed in order to maximize the signal, and minimize the amount of equipment needed."

According to Henderson, the other keys to the company's success are its flexibility in designing networks and structuring deals and its devotion to Marketing-101 precepts about listening to what the customer wants and giving it to them.

StayOnline claims to tailor its offering for each individual hotel. The deal could involve a cash sale, direct leasing or third-party leasing. Most are third-party leasing deals, Henderson says -- but it's whatever the client wants.

The installation could be just a straight guest-access wireless network using the 802.11b-based RoamAbout products from Enterasys Networks that StayOnline recently standardized on. The company will also help customers add parallel wireless networks for back-office or curbside check-in applications.

It worked with San Jose CA-based hardware manufacturer Wyse Technology to develop an in-room thin-client device, an Internet appliance that lets hotels provide service to clients who don't have laptops. The user can't alter the device in any way, and it provides only Web-related functionality.

StayOnline will develop a custom portal for the property so that guests log in through a page that gives the hotel a chance to show its services and amenities. It will even design and produce the little signs that sit on the desk in the room and explain the service to guests.

Marketing to a hotel's customers, especially corporate customers, is crucial to the success of a hotel high-speed Internet offering, De Milia believes. It's something that too often was was not done under the old Darwin-style business model. StayOnline will, if a client wants, handle all aspects of marketing to corporate customers, right down to designing, printing and mailing direct marketing materials.

Being flexible, however, does not mean being flexible about the basic business model. StayOnline recognized almost from the start that high-speed Internet would have to be a hotel-pays proposition. While it may be possible, "intuitively," to make a hard-dollar business case for a hotel wireless Internet system, high-speed Internet is ultimately "an amenity they can leverage to put heads on beds," Henderson says. Wireless Internet is an amenity like ice machines, valet parking, TV, and cable programming.

De Milia can provide only anecdotal evidence about the heads-on-beds impact: One StayOnline customer lost important corporate business to a nearby Marriott hotel because the Marriott property had high-speed Internet. As soon as the StayOnline system went in, Henderson says, the customer got the business back.

"So they're getting 40 to 50 room nights a month solely because they have the amenities their customers wanted," he says. "We're not showing that [guests] are using it a lot. But it's like dual-line phones or voice mail or any of these things."

It's increasingly just a cost of doing business, in other words. StayOnline has three types of customers: those giving away high-speed Internet service for free, those charging a premium fee (about $10 a day) and those charging a nominal fee (about $3 a day).

"The overwhelming feeling we're getting, at least from the larger, higher-end properties, is that they're going to charge for it now but it will be free in 18 months," Henderson says. "That's where everbyody is going -- making it free, just as local calls and HBO are free in some hotels."

So what will it cost a hotelier to provide this amenity? StayOnline likes to quote ballpark costs per-room, per-night based on a three- to five-year lease. Everything is included -- hardware, software and ongoing services, including 24/7 technical support and maintenance.

The range is 20 cents to $1.05, Henderson says, depending on what the hotel installs, how much it wants StayOnline to do and how easy or difficult the installation is. A two-floor frame building with two long corridors is easier and cheaper to install than a property with 20-inch poured concrete walls and all kinds of nooks and crannies.

Does StayOnline have any killer competitive advantages over its rivals? Probably not, but it's clearly doing some things right. The question is, notwithstanding its relative longevity and apparent financial stability, can StayOnline convince nervous hoteliers to take a chance on a small start-up when so many properties have been stung by Darwin, MobileStar and other late lamented dot-com casualties? That remains to be seen.