Elgan: Why Starbucks will win the Wi-Fi wars

Some coffee shops are killing free Wi-Fi, but Starbucks has made free Wi-Fi unlimited

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Peet's would do better to either kill Wi-Fi altogether -- and thereby free up some tables -- or make Wi-Fi free and unlimited, which would thrill those laptop users lucky enough to find tables. As it is, nobody is happy with the seating arrangements or Wi-Fi service at Peet's.

Why the extreme policies are right (and why Starbucks will win)

The ugly truth is that free Wi-Fi gives advantages to large companies over small ones. The larger they are, the more they benefit from free Wi-Fi.

The reason is obvious: Chain stores are big. Because Starbucks is massive, ubiquitous and global, it can be a media, marketing and advertising platform. Its scale enables Starbucks to both efficiently provision Wi-Fi and leverage it for profit. Another benefit is that spreading the word about free Wi-Fi and free content encourages customers to visit Starbucks chain stores while traveling.

Small companies offering Wi-Fi, on the other hand, often struggle just to provide the service. Thrust unprepared into the unhappy role of IT support providers, proprietors of mom-and-pop stores are alone in dealing with technical problems, malware and hackers. Because small coffee shops are small, they can't make lucrative content deals the way Starbucks can, so the Wi-Fi doesn't pay for itself. And finally, thrilling a local customer with Wi-Fi doesn't pay off when they travel. They go to Starbucks anyway.

I believe that free Wi-Fi plus free content partnerships plus 11,000 stores in the U.S. is the winning formula for dominating the coffee shop industry.

Many small coffee shops are probably better off simply shutting down their Wi-Fi networks, depending on the number of tables and the nature of their local clientele. So many people have mobile broadband these days that Wi-Fi probably isn't worth the trouble for the smallest coffee houses. Mobile broadband users can still use laptops while they enjoy their lattes, but they're not tethered to the coffee shop's network and therefore don't need to sit there all day.

But that doesn't mean small coffee joints will be OK. The decimation of local coffee shops will probably accelerate now that Starbucks is offering both free, unlimited Wi-Fi and also free content that costs real money elsewhere. Starbucks is taking advantage of a change in the economics of coffee shops, a change that's great for Starbucks and lousy for small coffee houses.

That change is caused by the digital revolution. People hang out in coffee shops to socialize and read. The way we socialize and the way we read is changing. It happens over the Internet now. But only the largest chain -- only Starbucks -- is in a position to monetize this cultural change.

The transition will be nearly identical to the destruction of small video stores by Blockbuster years ago. However, Starbucks will be spared the same fate as Blockbuster, which is being destroyed by Netflix and movie downloads -- at least until somebody figures out how to send coffee over the Internet.

And Peet's? Yeah, they have a lousy Wi-Fi policy, but they'll do just fine. They have a unique strategy: They make good coffee.

Mike Elgan writes about technology and global tech culture. Contact Mike at mike.elgan@elgan.com, follow him on Twitter at @mike_elgan, or read his blog, The Raw Feed.

Copyright © 2010 IDG Communications, Inc.

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