Seattle, WA-based Starbucks Coffee,
the mega-coffee chain, will be announcing a new deal with Hewlett-Packard and
This pact, building on relationships Starbucks already had in place, will likely
expand not only T-Mobile’s wireless foot print, but could also turn Starbucks
into the largest cyber cafe chain ever, as HP/Compaq products will be provided
for use by coffee drinking customers. Whether the provided HP equipment will
take the form of kiosks, rented products, or something else should be announced
during the press conference tomorrow in San Francisco.
The question is, where will the revenue from this venture come from?
"It will be the "after the morning rush" people providing the
revenue," says David Chamberlain, Research Director for Wireless Internet
Services and Networks at Probe Research. "It could help Starbucks
expand and pull in revenue from the people who will tinker on a laptop… and
want a cappuccino."
Chamberlain is skeptical, however, that any Wi-Fi hotspot network in a coffee
chain can sustain itself, simply because of the numbers. "Consider all
the laptops [available] and all those going to Starbucks with laptops, and that
have an 802.11 adapter, and that are willing to pay the price [for wireless
access]. There’s a finite number; there’s a small market you’re trying to extract
What benefit will there be for HP, now the top computer seller? There is some
speculation that the Starbucks locations could be used by as a display case
for selling its wares.
Sarah Kim, Analyst at the Yankee Group, cautions the partners to
move slowly. "Providing products is a dangerous move — walk before we
run here," she says. "They need to get the WLAN started again,
get the branding and awareness of the service [in place], and target the users
already familiar with it."
How It Began
The genesis of this latest pact began with separate deals Starbucks already
had in place with Compaq, which is now part of HP, and MobileStar, which went
under and had its assets acquired by VoiceStream Wireless.
In May 2001, Compaq announced
it would provide Starbucks locations with iPaq handhelds running the Pocket
PC operating system for use by customers in 4,100 stores over five years. The
expectation was for users to get not just Web access but also a platform for
streaming audio and video on-demand. The deal was rolled out in at least Dallas,
San Francisco, New York and, or course, Seattle.
Earlier in 2001, MobileStar Network of Richardson, TX, began providing a wireless
infrastructure for Starbucks, frist using frequency hopping (FHSS) technology,
and later moving to 802.11-based direct-sequence spread spectrum (DSSS).
In late 2001 VoiceStream Wireless, itself a subsidiary of German phone company
Deutsche Telekom, made plans to acquire the bankrupt MobileStar and its network.
In March of this year the company announced a name change to
T-Mobile, unifying its cellular and hotspot brands under one logo. The plan
is for WLAN services to be a compliment to the existing nationwide GSM/GPRS
T-Mobile currently has hotspots in airports and even some Starbucks locations
in San Francisco and New York. T-Mobile sells access in everything from per-minute
plans to local subscriptions to national subscriptions.
No Taste for Coffee
As VoiceStream was announcing its MobileStar take over, it was already at work
on some Starbucks equipment, specifically at the location in Pioneer
Courthouse Square in Portland, OR. The park, the sight of the city’s first
real schoolhouse and sometimes called Portland’s living room, is used daily
by traveling commuters, tourists, shoppers, students — and now by competing
The Portland Oregonian reports that the Personal Telco Project, the grassroots
effort to provide free 802.11-based Internet access in a "cloud" around
downtown Portland, is at odds with the local Starbucks in the square.
There are about 70 donated access points for the project in the area, one of
which is in an office over Pioneer Courthouse Square. New users coming for free
access to the park, however, could find themselves connecting to the Starbucks/T-Mobile
connection. What’s more, since both providers are using 802.11b technology —
they’re running in the same 2.4GHz band — performance is already taking a hit.
Starbucks and T-Mobile reportedly said they weren’t aware of the Personal Telco
presence there, but have other wise made little statement. With rollout to thousands
of locations to come, the coffee giant should be expecting some similar problems
in other locations close to neighborhood
Don’t Say Cyber
Kim says, to make sure Starbucks doesn’t be come too wrapped up in the technology
involved in this pact, the company should "stay away from the world ‘cyber
cafe’." This echoes the words of Starbucks chairman Howard Schultz from
the initial Compaq deal in 2001. He denied that Starbucks would become a cyber
cafe at all, saying "It will be the antithesis of that."
Kim adds that Starbucks should stay focused on what it does best. "Keep
the core business of Starbucks — coffee– and maintain those margins,"
she says. "This will be a passive role out. [Wireless access] should not
disturb the Starbucks experience."
After all, unlike the nascent market for wireless
hotspots, coffee is a proven money maker.
Eric Griffith is the managing editor of 802.11 Planet.