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Prediction: Starbucks Wi-Fi will soon be free

The for-pay Wi-Fi model at Starbucks feels old and stale, says Mike Elgan

October 11, 2007 12:00 PM ET

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Starbucks, the giant coffee chain with 13,168 locations worldwide, was a pioneer in rolling out wireless Internet access for customers. Along with partners T-Mobile and Hewlett-Packard, the company offers Wi-Fi for those who pay either a one-time connection fee or a monthly fee for all the Wi-Fi you can handle.

When Starbucks introduced for-pay Wi-Fi in 2002, it seemed like a great deal (especially for business customers who could expense it). But five years later, the model appears old and stale and ready for a complete overhaul.

Prediction: Starbucks will start rolling out free Wi-Fi access within one year.

In fact, Starbucks is already offering free Wi-Fi, in a way. If you want to use iTunes with your iPhone to buy the music you hear being piped over the Starbucks speakers, you don't need to pay for a T-Mobile account to do so.

The arrangement is part of a larger effort by Starbucks to use its Wi-Fi connectivity for other kinds of revenue. Providing free Wi-Fi so customers can buy things from Starbucks online makes sense as a sustainable revenue mode.

Pitched battle with McDonald's

The other reason Starbucks wants its Wi-Fi to be free is that competitors are starting to do it. Starbucks is, in fact, locked in a pitched battle with McDonald's for the lucrative morning commute breakfast crowd.

In the past two years, McDonald's has been offering upscale coffee -- even espresso drinks -- and testing a Starbucks-like concept restaurant called McCafe, of which there are now 500 worldwide.

In response, Starbucks started testing what could only be described as "Egg McMuffins" and "downscale" food products like Krispy Kreme doughnuts.

The most recent shot by McDonald's across Starbucks' bow is a rollout of free Wi-Fi at all U.K. restaurants this week. This will prove to be a real draw, especially as iPhones and iPod Touches and similar Wi-Fi devices proliferate around the world. People will really want free Wi-Fi as they sip their McCappuccinos. I expect McDonald's to gradually roll out Wi-Fi at restaurants in other countries -- including in the U.S.

Unsurprisingly, coffee drinks at Starbucks are super profitable. By making Wi-Fi free, Starbucks will be able to counter the lure of free Wi-Fi at McDonald's and not miss out on the real money -- the sale of coffee.

Well, that's my prediction. I'll report back one year from now -- or when Starbucks makes Wi-Fi free, whichever comes first.



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