RealTime IT News

Guests Demand Wireless

In American hotels that offer guests broadband Internet service, the average usage rate according to most estimates is less than 5 percent. In other words, on any given night, fewer than 5 percent of guests are actually paying for the service -- which is not many.

Yet demand from hotels for broadband wireless solutions apparently remains high. How else explain the proliferation of wireless start-ups muscling in on pioneers like Wayport and targeting this besieged sector?

Josh Friedman, CEO of Portland OR-based Eleven Wireless -- just such a start-up trying to get into lodging Wi-Fi -- puts it into perspective. "There are 56,000 hotels in America," Friedman says. "Only 1,500 have high-speed access, and few of those are wireless."

This is no doubt a good statistic to flash at venture capital guys, but probably not a very accurate calculation of the market universe for companies like Eleven Wireless, which provides Wi-Fi outsourcing and systems integration services to hotspot venue owners.

Still, Eleven, incorporated in March 2002, has had some success with its hotels-first strategy. The company recently announced that it had deployed a Wi-Fi access system at the 319-room Sheraton Tacoma, a downtown hotel in Tacoma, WA, catering to business travelers and conventions. It's the city's largest inn.

"Our guests demanded high-speed connectivity and we responded by providing the freedom and convenience of fast, easy-to-use, wireless broadband in and around our facilities," the hotel's general manager, Mark Mathews, is quoted as saying in an Eleven Wireless press release.

Guests demanded it. Matthews doesn't say how many guests demanded it, but then according to Friedman, it doesn't take many. "If a hotel has one client who wants it and they don't have it, they're in trouble," he says. "The hotels are saying to us, 'Hurry up, we need you badly!'"

This is perhaps the beauty of the hotel market for Wi-Fi companies like Eleven: the fear factor -- the fear that guests in larger and larger numbers will simply walk away from your front desk if you can't offer them high-speed Internet access.

Eleven has helped at least a few smaller hotels in Portland deploy broadband wireless -- including Hotel Lucia, Mallory Hotel and the Mark Spencer Hotel. For reasons not quite clear to us, Friedman won't say even approximately how many installations Eleven has under its belt altogether to this point. Other than to say it's a "surprising" number. (Surprisingly large or surprisingly small?)

Nor will he say how many the company expects to have completed by the end of this year, though he does confirm it will announce other deployments in the next few weeks, including some involving major brand names.

Eleven is about to expand outside its Pacific Northwest base. Among the new clients are properties in California, in the mountain states and some east of the Mississippi. "That is one of the great things about this business," Friedman says. "Within reason, geography is not too much of a barrier."

The company is also considering other verticals -- including another seemingly over-worked market: coffee shops.

"Originally we were going to avoid the coffee shops," Friedman says. "But Starbucks and T-Mobile have left such a large wake. In Portland and Seattle especially, all [the coffee shop owners] want to compete with Starbucks. They're telling us, 'Our coffee is cheaper and better, but [Starbucks] has wireless Internet access.'"

So Eleven will likely wade into the coffee shop hotspot market, though Friedman is not 100-percent convinced the revenue stream will be there. The company is also investigating the residential/multi-dwelling-unit (MDU) and convention center markets and, further down the road, gas stations. Friedman believes that in the future commuters and travelers stopping for gas will want to take the opportunity to check their e-mail -- a notion that seems plausible enough.

The company's plan of attack on the hotel sector is not totally original, but is different in some respects from what competitors are doing. For example, while Eleven uses mostly off-the-shelf hardware from name-brand vendors, it developed its own software infrastructure for billing, authentication, marketing, etc. -- and built it so it would be easy to integrate with existing hotel back-office systems.

It sells the hardware -- access points, client cards, servers, switches -- and software to the venue owner. Then it manages the network under a contract that gives Eleven no guaranteed management fee, but a share -- Friedman won't say how big -- of the revenues from selling service to guests.

Guests at the Sheraton Tacoma pay $9.95 per day for unlimited access and rental of a Wi-Fi card. Even at five-percent utilization, that works out to a share in about $65,000 a year, which doesn't sound like much. But Friedman says, "We're doing well, we're profitable."

The strategy is to build the venues, then switch focus to end customers. Eleven has ambitions to acquire monthly subscription customers, but its not yet offering monthly subscriptions. "We believe it's a little early for that," Friedman says.

In other words, there are too few daily customers at its hotel venues to make it worthwhile trying to convert them to monthly subscribers. In any case, the company doesn't have any roaming agreements in place yet. It also seems slightly ambivalent on how to proceed on the roaming front.

Friedman says aggregators such as Boingo, iPass and GRIC present "an interesting [business] model," but adds, "in my opinion, they're not really helping the Wi-Fi industry."

He believes Wi-Fi hotspot operators should rather follow the lead of the cellular industry and establish direct one-to-one roaming agreements. However, Wi-Fi operators are so far doing "a poor job" of this, Friedman admits. Of course, it's a difficult and time-consuming task when there are hundreds or thousands of tiny Wi-Fi operators to think about.

For now, Eleven is focused on the venue owners. Friedman says his company differentiates itself in a crowded marketplace by focusing exclusively on wireless -- unlike, for example, Wayport. This is important because "networking, any networking of computers, is a pain in the ass," he says. "And wireless adds tons of complexity." It requires considerable expertise.

All of the company's three founding partners have wireless and/or networking experience. Josh Blank, head of research, engineering and product development, owned and operated Pop Art, a Web site development and mobile wireless application development company in Portland.

Friedman and his other partner, Andrew Yorra, vice president of sales and business development, met when both worked at Portland-based network security software developer Tripwire.

Eleven also differentiates itself from many competitors, it says, by building "business-class" networks. It's not enough in this environment to simply have a network that works most of the time. It has to work all the time, Friedman says. Downtime equals lost revenue, not just mild inconvenience.

The company also aims to provide service above and beyond, which often means it ends up managing the relationship between its client and whichever supplier the client is using for broadband Internet access services.

Despite being wireless specialists, Eleven claims superior knowledge of its target customer's businesses. "Hotels have concerns and needs that are much different than other sectors," Friedman says. "Hotel guests, for example, want to have one payment method. They're very picky."

Which is why Eleven built its server software to be easily integrated with existing hotel back office systems. Access fees are added to the guest's hotel bill. The Eleven system passes billing information through to the hotel system in a form it can digest.

Eleven appears, at the very least, to be doing a few things right. But whether that means it will be the next Wayport -- or better, the first company to actually make money at operating hotel wireless access systems -- remains to be seen.