When Do You Charge, When Should You Be Free?

Apologies for the unusually long post, but it's an interesting topic, and a short post wouldn't do it justice. Alan Reiter has posted the question on his blog about charging for WiFi, saying he needs to tell his clients when to charge and when to be free. It's a question that a lot of people are struggling with, and I think I have a reasonable answer:

You can charge for your WiFi access point if there's a reasonable expectation that there will be no competing WiFi in the area. It's that simple - except it isn't. The "area" in which free WiFi might be available may differ based on the customers. Some will be willing to travel distances to get the free WiFi over paid WiFi. However, if you think that the majority of your customers (a) won't be willing to do what's necessary to get to free WiFi and (b) are willing to spend enough to make the additional costs (billing, tracking, maintenance, security) of paid WiFi, then you can probably get away with charging. Other than that, if you want to charge for your WiFi, it had better be bundled with something else, so that the overall value to the customer goes up (making the competition no longer between two equal products in the mind of the customer).

It goes back to simple economics: in a competitive situation, price will get forced down to marginal cost - and the marginal cost of letting another person get on your WiFi network is zero. So, if your WiFi is seen in competition with an equal (in the mind of the customer) WiFi access point, the price will eventually get driven to zero. Also, if there's no equal WiFi offering currently in competition with you, you'd also better be sure there won't be in the future (so it helps to control a wide area of land, such as an airport). So, if you're JimmyBob's coffee shop and you want to charge, realize that BillieSue's laundromat across the street may set up free WiFi, and your plans to charge will disappear.

The other option is to make your offering not in direct competition, and provide a service in addition to the connection that has a perceived value that exceeds the price you want to charge. For example, if you can convince people that a secure VPN is worth it, then you can charge for that. In some cases, this value may be entirely perceived (branding). So, perhaps people will be willing to pay for SBC WiFi because they somehow "trust" SBC.

If those don't hold true, then you're going to be forced into providing free WiFi - which isn't a bad thing. If you have something that is being driven down to a price of zero, then you might as well use it as a promotional item to advertise for something else. For example, Schlotzky's Deli using WiFi to bring in more customers.



Reader Comments (rss)

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    Dug, Apr 2nd, 2008 @ 8:11am

    Free and unfettered access for all (pretty please)

    Charging for connectivity in a public space is like charging for tap-water in a restaurant. It's just wrong.

    http://www.donkeyontheedge.com/internet_culture_and_politics/charging_for_wifi.html

     

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    Montana, May 8th, 2010 @ 10:14am

    Agreed.

    I agree with Dug. It's also like a gas station charging to use the bathroom. If the customer doesn't want to pay for a bathroom, he will take his money (which he probably would have spent on a snack over there) and leave. Only those who have to go so badly they can't make it somewhere else will pull out their wallet.

     

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    Ben, May 10th, 2010 @ 8:44am

    Hmm

    "It goes back to simple economics: in a competitive situation, price will get forced down to marginal cost"
    No it doesn't, not unless you have perfect competition - which is relatively rare, even amongst apparently identical products like wifi.

    " and the marginal cost of letting another person get on your WiFi network is zero"
    No it isn't...

    And there are situations where you might be wise to sacrifice market share, in order to get more profit - this article seems awfully specific that wifi would have to be a secondary thing - something to sell the main thing.

    What use is wifi at the laundromat when I want coffee anyway?

     

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