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IKANO News:
Title: IKANO Plots New Strategy After Wi-Fi Metro Purchase
Date: October 11, 2002
URL: sanjose.bizjournals.com
By Robert Mullins
A Utah company that acquired a failed Palo Alto-based wireless Internet
service provider this past summer thinks it has a more viable business
model than the previous owners. But at least one observer says that
remains to be seen.
Ikano Communications of Salt Lake City acquired the Wi-Fi Metro service
from HereUare Communications Aug. 28 and is now rolling out its
newly-branded Hotspotzz Wi-Fi service to nearly 150 locations
nationwide. Wi-Fi is short for wireless fidelity, a technology for
providing an Internet connection to wireless devices, such as laptop
computers.
Decals advertising the Hotspotzz service — to replace Wi-Fi Metro signs
— are arriving this month at locations offering the service, including
some in Silicon Valley.
"Wi-Fi certainly is a nifty option if you want to get on the Internet on
a wireless basis," says Chris McDonough, general manager of the Inns of
America hotel in Milpitas. The hotel is switching from Wi-Fi Metro to
Hotspotzz to provide wireless service to visitors in its lobby.
Other businesses switching to Hotspotzz include Tied House Café &
Brewery restaurants in San Jose and Mountain View, and LeBoulanger Inc.,
a chain of coffee shop/ bakeries based in Sunnyvale.
To provide Wi-Fi, a landline high-speed Internet connection is broadcast
by a transmitter to a given area, such as the interior of an office, a
hotel lobby, a restaurant or an airport lounge. Computer users with a
special receiver built or plugged into their computers, called a PC
card, can pick up the signal and log onto the Internet.
Several companies, such as HereUare Communications, have sprung up in
recent years to try to serve the consumer Wi-Fi market — individuals who
sign up for service for a month, or even just a day, at a time.
The Wi-Fi market has growth potential. Gartner Dataquest forecasts the
wireless equipment market, for instance — which recorded revenue of $1.5
billion in 2001 — to enjoy a compound annual growth rate of 22 percent
through 2005.
However, small startup service providers such as HereUare have struggled
to grow their user bases to profitability.
HereUare put the "for sale" sign out in August after failing to secure a
$3 million bridge loan to continue Wi-Fi Metro operations. Ikano
purchased Wi-Fi Metro for "pennies on the dollar," says Henry Smith,
Ikano's president and chief executive officer, but he declined to
specify how much Ikano paid.
Ikano says it has found a better way to market Wi-Fi. The 4-year-old
company sells network infrastructure and operational services to
Internet service providers. ISPs market themselves to subscribers but
turn to Ikano to run the network and billing systems.
Ikano, which posted about $40 million in revenue in 2001, serves an ISP
subscriber base of 600,000 nationwide to which it can sell Wi-Fi
service, says Mr. Smith. Ikano's ISP clients can bundle Wi-Fi service
with other Internet service offerings to those end users, he says.
"The value we bring is we have subscribers we can deliver into those
Wi-Fi locations," Mr. Smith says. "We can drive these subscribers into
their doors."
Wi-Fi service providers have struggled to sign up subscribers at retail
locations such as coffee shops and restaurants, where customers visit
only occasionally and don't always know Wi-Fi service is available.
While Ikano will sign up people for the Hotspotzz service on a
person-by-person basis, it hopes to provide a big boost to the user base
by offering Wi-Fi to its existing ISP customers.
But Ikano has made only a tiny footprint on the ISP landscape. While it
has 350 ISP clients, they are all small and specialized, with small
customer bases. The Church of Jesus Christ of Latter Day Saints, of Salt
Lake City, for instance, operates an ISP with the help of Ikano, as does
cosmetics seller Mary Kay Inc. of Dallas. The largest of Ikano's ISPs
has only 75,000 subscribers, a fraction of the millions of subscribers
claimed by the nation's largest ISPs such as America Online, MSN or
Earthlink.
That makes Wi-Fi industry analyst Charles Golvin skeptical of how
successful Ikano can be at boosting Wi-Fi usage. Mr. Golvin is with the
San Francisco office of Forrester Research Inc., a technology research
company based in Cambridge, Mass.
Although Wi-Fi technology is becoming more common in the corporate
world, where businesses establish wireless networks within their
offices, Wi-Fi has been slower to catch on in the consumer world.
A subscriber may sign up for a wireless ISP at a coffee shop in Ogden,
Utah, but be disappointed to learn the account does not work on the
Wi-Fi network at a coffee shop in Corvallis, Ore., because it is served
by another wireless ISP, says Mr. Golvin.
"Their model is good but their timing is wrong; Wi-Fi is not there yet,"
he says of Ikano. "They are going to be in the red [with Wi-Fi] for a
long time."
Wider deployment of Wi-Fi is going to depend on three factors, Mr.
Golvin says. First, there needs to be wider deployment of broadband
Internet service. Although more homes are getting broadband service,
most still have slower dial-up service. Secondly, more computers are
going to have to come with built-in PC cards to receive Wi-Fi signals.
Some new models do, but much of the installed base of computers does
not. Thirdly, more consumers are going to have to install wireless
networks in their homes to get them into the habit of expecting wireless
Internet access. Again, networking equipment sales are growing but
penetration levels are still low.
"Only then are you going to get consumers running around with their
laptops looking for a Wi-Fi network," Mr. Golvin says.
But Ikano points to some of those same equipment sales trends as
evidence that the Wi-Fi market is headed in the right direction. Mr.
Smith also points to one big Wi-Fi announcement that should boost its
visibility.
Starbucks Coffee Co., of Seattle — the McDonald's of coffee shops —
announced Aug. 21 a deal with T-Mobile International, a wireless phone
service provider, to offer Wi-Fi service to T-Mobile subscribers at
1,200 U.S. Starbucks locations, plus another 800 locations by year's
end.
Copyright(c) American City Business Journals Inc. All rights reserved.
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