Interview With Sky Dayton At Boingo
News.com is running an interview with Boingo’s Sky Dayton where he tries to lay out the business case for Boingo. He points out two things. First, that it’s still early, and everyone trashing WiFi hotspot business models are judging things too early. He points out that it’s wrong to judge the way things are now, but you need to look at where they’re going. I agree. However, it looks to me like where they’re going is going to make it tough for Boingo to make very much money. His second point, on the economics of all of this, makes that very clear. He says that it costs $150/month for a retail location to provide WiFi. That number may or may not be accurate. It’s probably true if you’re just running DSL, but many places offering paid-for WiFi feel obligated to offer much higher service levels that tend to cost a lot more. Next, he suggests that if a place gets 6 WiFi users a day (a low number, to be sure – but perhaps higher than many places already see), they’ll make a healthy margin on the $150, because Boingo pays them $2/connection – for a total of $360/month. Sounds good, right? Not really. That assumes those are six unique people each day. Assume there’s going to be some overlap. Let’s say, for example, that 3 of the 6 people are regulars who come every day. That represents $180 of the $360. Each Boingo customer is paying somewhere between $20 and $30/month for the connection right now (and pricing pressures suggest it’ll go lower). Now, Boingo is paying out $180 based on revenue of about $60. And that doesn’t include any money that needs to be paid out to other partners, such as Wayport who provides many of Boingo’s hotspots. As the pricing pressures increase, and more customers are “regular” users, the economics get even worse. It may sound good in an interview, but I’m not sure the business model is really there.
