Indie coffeehouses tell Starbucks: Bring on your free Wi-Fi

Smaller chains and solo shops brew wireless access their own way

Like many indie cafes, Seattle's Bauhaus Books and Coffee has long relied on free Wi-Fi to help bring in customers.

"In the evenings, the whole bar along the window will be lined with people using their computers," said Grace Heinze, a 13-year manager at Bauhaus, located between downtown Seattle and the trendy neighborhood of Capitol Hill.

Bauhaus has thrived despite all of the Starbucks shops that have popped up around it: 15 within half a mile, and 38 within one mile.

So is Heinze worried that the fiercely artsy cafe, named for the 1920's German art movement and replete with memorabilia, might lose customers to Starbucks now that it is dumping its high Wi-Fi rate — $6 an hour, or $10 a day — in favor of two free hours of Wi-Fi a day to any customer?

Not really.

"People come here because they like our atmosphere and because they like our coffee," Heinze said. "We're not feeling very uptight about this."

On Monday, Starbucks announced that it will replace longtime Wi-Fi partner T-Mobile with AT&T at its 7,000-plus coffee shops.

Anyone holding a Starbucks Card — whatever the value remaining on it — is eligible for the two free hours of Wi-Fi. Cards can be bought online for as little as $15.

"This is great news for consumers," said David Blumenfeld, senior vice president at Wi-Fi directory provider JiWire Inc. "Wi-Fi at Starbucks just became a lot less expensive, and I expect many more people to take advantage of it."

An additional two hours of Wi-Fi costs $3.99, while a monthly membership that gives access to any of AT&T's 70,000 hot spots worldwide costs $19.99 per month.

Meanwhile, the 12 million AT&T customers subscribing to a DSL package faster than 1.5Mbit/sec. will get unlimited access for free at Starbucks, in addition to the free access they already get at many McDonald's and Barnes & Noble stores.

AT&T is the largest Internet service provider in the U.S.

"I think it's safe to assume that given Starbucks' ubiquitous presence, offering free Wi-Fi could be a significant acquisition channel for AT&T with this deal," Blumenfeld said.

Small chains and indies

Wi-Fi hot spots began emerging around the beginning of the millennium. Propelled by the fast-growing popularity of laptops, Wi-Fi-enabled coffee shops quickly supplanted the older-style cybercafes, which relied on the expensive purchase and upkeep of PCs.

Still, until several years ago, many cafes were granting access to their Wi-Fi hot spots through codes given only to paying customers, according to Jack Kelley, president of Seattle regional chain Caffe Ladro.

There was the fear "that if public Wi-Fi was free, you'd fill your place up with 'campers,' " Kelley said, referring to patrons who linger all day without buying anything.

But that didn't happen after Ladro's 12 Seattle area cafes switched to free Wi-Fi several years ago. Nowadays, "we don't even care if you sit in the parking lot and use it," Kelley said.

Asked about the impact of Starbucks' move on his business, Kelley retorted, "Wi-Fi is free everywhere these days. Isn't Starbucks a little behind the times?"

In fact, some firms still make a tidy business selling Wi-Fi access. Take Boingo Wireless Inc., which charges $39 per month for access to 100,000 hot spots worldwide.

That remains competitive, especially to traveling businesspeople who are used to paying $10 a day in their hotel rooms.

But many regional or national coffee chains competing with Starbucks already offer free Wi-Fi, or are moving in that direction.

Minneapolis-based Caribou Coffee, reportedly the second-largest coffee chain nationwide with about 500 stores, automatically grants one free hour of Wi-Fi to any patron. When that expires, customers buy something more than $1.50 to get an access code granting unlimited usage the rest of the day.

Fellow Minneapolis chain Dunn Brothers offers free Wi-Fi with no strings attached at its 90 locations. Similarly, Seattle-based Tully's offers totally free Wi-Fi at about 80 out of its 150 stores.

Emeryville, Calif.-based Peet's Coffee & Tea Inc. will begin testing Wi-Fi at several stores starting next month, according to CIO Tom Cullen. If successful, Peet's will roll out free Wi-Fi at all of its 150 stores. No schedule has been set.

Los Angeles-based The Coffee Bean & Tea Leaf did not return a request for comment. Through a deal with AT&T, it has offered Wi-Fi at about 150 stores for several years, though it costs $3.99 for two hours, even for subscribers. Some Coffee Bean locations, however, appear on JiWire to be free.

Who's picking up the tab?

As pressure mounts to make more Wi-Fi hot spots free, some operators are turning to Web advertising to offset costs or make money. Those ads are delivered during log-in or at the user's landing page.

JiWire serves up ads to more than 8 million users per month on various Wi-Fi networks, including Boingo, Blumenfeld said, at rates far higher than ones on typical Web pages.

That kind of advertising "sounds gross" to Ladro's Kelley, though.

"It's just like all of those ads in the movie theatre," he said. "I say, enough is enough."

That's fine, said Blumenfeld, who thinks that most independent cafes, even those relying heavily on free Wi-Fi to attract customers during the slower afternoon and evening hours, will continue to do fine.

"Many patrons of the smaller coffeehouses will continue to support their local shop due to loyalty, unique surroundings versus corporate giant, community support, convenience of location, etc.," he said. "Any customer losses may also be offset simply because there continues to be so much more demand for Wi-Fi access in general."

Bauhaus' Heinze seconds that.

"We're close to two colleges, and we are in a neighborhood with a lot of apartment buildings," she said. Despite competing in Starbucks' backyard, Bauhaus, according to Heinze, has never "done anything reactive. And isn't that the whole point of being an indie coffeehouse, being your own self? If that happens to be similar to what Starbucks does, that's fine."

Copyright © 2008 IDG Communications, Inc.

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