Wednesday, June 16, 2010

Starbucks is smart to stop charging for Internet access. Everyone should follow suit.

 Whatever you think of its coffee, Starbucks has always been a nice place to get some work done. The stores are clean, the music inoffensive, the furniture comfortable, and the electrical outlets plentiful. And if you just need a quick pit stop to charge your phone, transfer photos to your laptop, or play a little Minesweeper, the Starbucks mermaid is always just around the corner, whether you're in Boston, Bangor or Beijing. Convenience has no borders.

Unless, of course, if you want to use the Internet. While local coffee shops have long offered free Wi-Fi, Starbucks signed up with a series of mobile providers over the years to gouge customers on Internet service. The company now offers free access for two hours, but only for customers who've recently purchased an item using a Starbucks card. Additional hours sell at the eye-burning rate of $3.99, a price that would lead you to believe that Starbucks is using some kind of next-generation fiber-optic network built from recycled coffee grounds. In fact, the company gets DSL services through AT&T. Like their coffee, a huge chunk of that $4-an-hour is pure profit.

But Starbucks has finally seen the light. On Monday, CEO Howard Schultz announced that beginning July 1, customers at all "company-owned stores" in the United States will get free unlimited Wi-Fi service with a single click—no complicated sign-up process, and no purchase necessary.

("Company-owned stores" exempts locations in supermarkets, hotels, bookstores, and other crannies of American commerce.) Starting this fall, customers surfing Starbucks' network will also get free access to paid Web content, including the Wall Street Journal, Zagat and select downloads from iTunes. The company hopes that its Web efforts will continue a recent revitalization of its stores—Starbucks was hit hard during the recession, but sales began to increase earlier this year.

Starbucks is certainly late to the free Wi-Fi game. McDonald's, among other rivals, began offering no-charge Wi-Fi this year.* Still, compared to other service businesses, Starbucks looks prescient. The world's upmarket hotels, for instance, still charge $10 to $20 a day for the Internet, the closest you can come to seeing poor creatures getting fleeced without visiting a sheep farm. Here's hoping Starbucks' plan prompts radical change in the tourism and hospitality industries. Per-hour Wi-Fi is a dying business. The sooner that hotels, airports, convention centers, and other similar places realize this, the happier they'll make their customers.

The case against charging for Wi-Fi is partly technological: Thanks to smartphones and other cellular gadgets, a lot of us don't need to pay up anymore. Phones capable of Wi-Fi "tethering"—which allow you to get Internet access for your laptop through your cell plan—are becoming more numerous; there are several ways to turn on free tethering in your Android phone, and Verizon offers it at no additional cost on the Palm Pre. (AT&T charges a ridiculous $20 a month for iPhone tethering.)

People whose phones can't tether are buying devices like the Mi-Fi—mobile Wi-Fi hotspots that allow your computer to take advantage of cellular networks. These services are relatively pricey—Verizon's Mi-Fi plans start at $40 a month—but for frequent travelers (who make up the bulk of the business at many hotel chains), these devices are much cheaper and more convenient than paying for Wi-Fi at airports and hotels. If you spend just four days a month on the road, it's wise to get a Mi-Fi. And if you've got a smartphone, you obviously don't need to tether if you just want a small taste of the Internet. I used to have to pay for hotel Wi-Fi just to watch for urgent e-mail and find local restaurants; now I can do all that for no extra charge on my phone.

Thanks to the smartphone war between Apple, Google, RIM, Microsoft, and Palm, we're bound to see rates for these cellular plans fall, and smartphone adoption rates are skyrocketing. In the same way that you'd be a fool to make a long-distance call on your hotel phone, soon almost no one will need to pay for hotel Wi-Fi. The revenue well is drying up. The smartest hotels are coming around to this view. Many mid- and low-budget chains—including Best Western, Comfort Inn, and Holiday Inn—have recently switched to free Wi-Fi. It's the pricey places that continue to charge—you can get free Wi-Fi at the Ramada, but not at the Ritz.

Perhaps the theory is that people ponying up $500 for a room aren't going to budge at paying $10 for the Web. Maybe. But if you're not charging them for them extra for the soap or the toilet paper, why nickel-and-dime the Internet? Although there are no firm numbers on how much it costs hotels to provide Wi-Fi, it's likely no more than a dollar per room per night (and probably far less, considering the speed you usually get when you do pay; if you'd like to relive the joys of the dial-up Internet, visit your nearest fancy hotel's "business center.")

I expect some readers will attack me as a hippie freeloader looking for a Wi-Fi handout. You'll also point out that even if providing the network is cheap, there may be other costs associated with giving away Internet access. Local coffee shops have long lamented the problem of Wi-Fi-induced lethargy—there seems to be no better way to keep a nonpaying patron in the store than to give him endless electricity and Internet access. The Wall Street Journal reported last year that some mom-and-pop shops have begun blocking their wall plugs or prohibiting laptops during certain hours in order to discourage Internet moochers.

But the evidence for this trend appears thin. Other coffee shops report that Wi-Fi has been a draw, a way to market an establishment as friendly and welcoming compared to the Wi-Fi-crippled Starbucks. And the coffee behemoth says it doesn't expect to be overrun by Wi-Fi leeches. Currently laptop users spend an average of 60 minutes on Starbucks network, and smartphone users spend 15 minutes, a rep told me; the company doesn't expect those numbers to rise substantially when it rolls out its new plan.

And when it does, the hotels will really feel the pinch. Why buy Wi-Fi in your room when you can get it with your latte in the morning? Or, heck, skip the latte. The Internet is free. - Farhad Manjoo

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