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Cable Technology Feature Article

December 16, 2009

McDonald's Offers Free WiFi: Why it is Important

By Gary Kim, Contributing Editor

McDonald’s will offer free WiFi (News - Alert) at almost all of its U.S. restaurants starting early in 2010, according to a recent article published by the Wall Street Journal.
The new “no incremental charge” service will be available in about 11,000 of the 14,000 U.S. McDonald’s locations. And this charge is important for what it reveals about the nature of “Internet era” business models, namely that sustainable and lucrative models often involve a mix of “for fee” and “free” features. And what is “given away” or “merchandized” often is quite valuable.
Most retailers offer WiFi service as a way of increasing value for customers and also enticing them to drop by and stay longer. The latest move by McDonald’s is a part of that trend. But it is more than that.
Over the years, though, most WiFi hotspot providers have found a direct business model quite challenging. The service is important and valuable, but users are resistant to pay for it. If that sounds familiar, it should. There are many valuable features, application and services available to users at “low to no” retail prices in the Internet economy. The challenge for any supplier of those features is to couple the valuable but “free” features with “for fee” products at prices end users deem reasonable.
Major Internet service providers therefore have made public WiFi an amenity of their fixed broadband access services, the revenue model being indirect: more customers, more customers on higher-priced plans, less churn and longer customer lifecycles.
It is conceivable that other communications features and applications might someday find themselves in just this spot: valuable and useful but with scant ability to command incremental revenue.
It likewise appears that Comcast (News - Alert) thinks the public hotspot business model will hold, at least initially, for on-demand video entertainment. The idea is similar: keep customers paying for a fixed video connection and then offer them on-demand access to some of their programming on PC or mobile screens, either at the same or out-of-home locations.
Nobody knows yet how on-demand video business models might evolve, but a stable video version of the current WiFi hotspot model is what Comcast intends to explore.
The answer to the question of whether voice, video entertainment or applications will be “for fee” or “available at no incremental cost” likely will remain nuanced. No, not all features and services will be provided broadly “at no incremental cost.” But yes, some substantial portion of features or services will be provided this way.
The challenge is to find the right mix of “for fee” and “for free” applications and services so that a stable, profitable and enduring business model is preserved, but consumers also are provided richer services and value at prices they are willing to pay.
But the new environment clearly supports and demands that products of high end user value be provided using a mix of revenue models. Not everything can, or will, be provided “for free.” But lots of products will, on a sustainable basis, so long as some indirect revenue model can be established.
Public WiFi is one example of that. Comcast on-demand programming and most Google (News - Alert) apps will be other salient examples.

Gary Kim is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Marisa Torrieri