A Jolt to the Hotspot

Yet another hotspot hotshot has popped up with a plan to populate the world
with Wi-Fi access points. Joltage of New
York City, endorsed (and invested in) recently by cyber guru Nicholas Negroponte,
head of the MIT Media Lab, has a plan that is interesting and innovative to
say the least.

Joltage (a brand name owned by Organic Networks, Inc.) is run by reincarnated
dot-com pioneers, including chairman and founder Andrew Weinreich, who sold
his online community, sixdegrees.com, a while back for $125 million.

The new company went live in March, after over a year of preparation, with
a Web site offering free hotspot software — and the access network infrastructure
to back it up. Any pizza shop Mom and Pop with a PC, access point and broadband
connection can download the software, load it on their PC and start signing
up Joltage customers.

Customers, who pay $1.99 per hour or $24.95 a month (for up to 60 hours and
500 MB of download), don’t need software. They just add a Joltage connection
profile to their network settings and they’re ready to log on anywhere they
can find an affiliate hotspot — there are over 45 locations so far.

"That’s one of our key differentiators," says chief operating officer
Roberto Aguas. "The low barrier of entry both on the subscriber side and
for hotspot owners."

Other hotspot service providers require users to install client software. If
you find yourself in one of the service provider’s hotspots but haven’t previously
signed up and received the software, you’re out of luck. Users can sign up and
get access right away at a Joltage site.

"And on the owner side," Aguas notes, "it’s also free, where
others charge $300 to $400 for their gateway software. We truly believe that
in today’s economy our model is the only one that is viable."

He means that in light of the failure of MobileStar and other pioneers it’s
clear nobody can afford to build all of the network infrastructure. The beauty
of the Joltage model is that hotspot owner-partners supply the hardware, Joltage
provides the software and back-office infrastructure.

"So we both have skin in the game," Aguas says.

The revenue-sharing deal for hotspot owners is a little complicated, but entirely
rational. Joltage claims the first 20 cents of every dollar earned from subscribers
at a site to cover software maintenance, customer support, handling credit card
transactions and global marketing.

The rest it shares more or less 50-50 with partners. The hotspot owner gets
20 percent guaranteed, 10 percent if he comes directly to Joltage to sign up
as a partner — an ISP or broadband service provider could grab that 10 percent
if they sell the owner on Joltage — and 10 per cent for signing up the

That comes to 40 percent. The other 10 percent they have to earn: five percent
for sticking with Joltage for at least five months, up to five percent for keeping
quality of service high. Their portion of that last five percent is worked out
by dividing the 12-hour business day by the number of hours their access point
is up and running.

The cost — and risk — of entry for hotspot owners is low, but not zero. They
need a PC, of course. They almost certainly already have one, but it must be
one running Windows NT, 2000 or XP — so they might need to upgrade.

With the current Joltage software, they need two network interface cards in
the PC, although a new version due out in June will accommodate single-NIC configurations.
They need an access point, which they might already have for a WLAN, and a broadband
connection, which again, they might already have for internal use.

Joltage’s business model begs a few questions, but Aguas was able to answer
most of them convincingly enough.

For starters, we wondered what kind of broadband connection hotspot owners
need — both from the point of view of the legality of reselling and from the
perspective of having sufficient bandwidth.

On the first point, Aguas says, "We’re very cognizant of the legality
issue. We say right in our agreement with the owner that we don’t suggest they
do anything illegal. They have to review the agreement with their broadband
service provider to be sure it’s okay."

A "decent number" of broadband service providers do allow reselling,
he says, including one, as yet unnamed, that will become a Joltage distributor
under a new agreement to be announced shortly.

Cable companies typically do not allow reselling, but Aguas believes that as
the Joltage business spreads, pressure will build and cable companies will have
to offer more flexible deals that do allow reselling.

He also refers to the Joltage service as a "killer app" that will
help CLECs, ILECs and ISPs sell broadband access.

As for the amount of bandwidth needed, theoretically, it could be anything
down to a 56Kbps dial-up connection, Aguas says. That is what some hotspot owners
in Latin America are using, he points out. Practically speaking, a consumer-grade
DSL connection would probably be a minimum.

The issue, of course, is capacity. With a few users doing light Web surfing,
a DSL-class service would be adequate. For 30 or 40 simultaneous users, it would
not. Joltage helps with capacity issues in a couple of ways.

First, the hotspot software manages bandwidth, dividing it equally among all
active users at the site. Second, since hotspot owners are not IT professionals
and cannot be expected to even think of, let alone do, capacity planning, Joltage
does it for them automatically. If it sees that a hotspot is consistently running
slow, it will recommend the site owner upgrade his broadband service.

How will hotspot owners respond to such "recommendations," which
could significantly increase the amount of ‘skin they have in the game?’ Presumably
it hasn’t come up yet, but Aguas insists it would not be a question of Joltage
selling the site owner on an upgrade. It would only be providing free information
that could help the hotspot owner.

"If they don’t [upgrade], it’s okay with us," he says. Then he admits:
badly degraded performance at one hotspot will hurt Joltage overall.

Against that consideration, however, the company has to "balance a couple
of things." For one, it’s anxious to keep any hint of hard sell out of
its offer to hotspot owners. Right now it’s a very easy sell, Aguas says, and
to succeed, Joltage needs to keep it that way.

Besides, he points out, in a fully-populated Joltage hotspot network, if one
hotspot owner allows performance to degrade, subscribers can easily go across
the street to another that offers better performance. So in that sense, insufficient
capacity will only hurt the hotspot owner.

Security is another big question mark.

It’s likely that at least some site owners will have their main business PCs
doing double duty as hotspot gateways. It’s well understood in wireless circles
how vulnerable WLANs are, but hotspot owners cannot be counted on to understand
these issues. Joltage’s security had better be foolproof.

It is, Aguas claims. "We spent an equal amount of time building the security
as we did on all of the back-end infrastructure," he says. So confidant
is Joltage in its security that it plans to run a promotion offering prizes
for anyone who can break it.

The other obvious questions are about the old chicken and egg dilemma — how
do you attract hotspot owners without users and vice versa?

Aguas says that even with "zero marketing," the company has been
bringing on about one new hotspot a day. This is based on the 45-plus it had
as of late May, but some of those are freenet sites — Joltage software supports
free sites on the assumption that adding them to the network will make the value
proposition to subscribers more attractive.

He won’t say how many paying subscribers there are yet, only that there are

Joltage is in the process of negotiating deals with major multi-site owners,
including some with properties around the world that it hopes will help break
the chicken-egg logjam. It is also, as noted, trying to attract broadband service
providers as distributor-partners.

But what it really needs to do to ratchet up the "viral" spread of
Joltage hotspots is some marketing. For that it needs additional funding. Negroponte
was an angel investor. Joltage needs more. It’s now in the process of a first
round of institutional funding, seeking somewhere between $5 and $10 million.

Aguas is coy about where Joltage is in this process. "We’re confident
we’re going to get the funding," he says, implying there are multiple investors
prepared to stake the company.

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