WiFi coverage is all over the place – at least in the media! Barron’s adds its views, summarising that “wireless networks are proliferating, but making money will be tricky”:
After a relatively slow start, Wi Fi seems to have reached the tipping point. “The great value of Wi Fi is not that it is fantastically advanced technology,” explains Kevin Werbach, a consultant and commentator who spent four years at the Federal Communications Commission, working on technology policy issues, and later edited the newsletter Release 1.0. “It has many limitations, and it’s not near the cutting edge. But it’s being widely adopted. You can buy a Wi Fi card for $50. And every time someone puts up a hot spot, I benefit from that. Every added bit of connectivity adds to the collective benefit.” That’s a variation on Metcalfe’s Law — the idea proffered by 3Com founder Robert Metcalfe that a network’s utility increases exponentially as the number of users grows.
That dynamic drives growth. In 2004, according to Oyster Bay, N.Y. based tech market research firm Allied Business Intelligence, more than half of all computer notebooks sold worldwide will be Wi Fi capable; by 2008, the total is expected to reach 93%. Although lagging a bit behind PCs, the same thing is happening with personal digital assistants, or PDAs — 50% of handhelds should be Wi Fi enabled by 2006, according to ABI, up from 3% in 2002. ABI figures all the Wi Fi enabled hardware will drive up the number of paying hot spot customers to 5.5 million in 2006, from an estimated 24,000 last year. Rich Beyer, CEO at Intersil, the leading producer of Wi Fi chips, contends there will be at least 100 million Wi Fi capable systems in the market by year end 2004.
“As the costs come down, it becomes virtually free to put Wi Fi radios in a wider and wider variety of devices,” Werbach says. “Pretty soon, you won’t be able to buy [the devices] without Wi Fi. Right now, $10 $20 for a Wi Fi chip doesn’t add much to the cost of a laptop, but it’s significant for a PDA. At $2, it doesn’t add much to a PDA’s price. At 50 cents, every consumer electronics device will have a Wi Fi chip.”
John Patrick contends that Wi Fi really might be the next big something the Valley desperately needs. “We’re very much in parallel with where we were with the Internet almost 10 years ago,” he says. “I remember looking at the Internet at IBM in 1994 and thinking: ‘This is really cool, but where’s the money?”’ The questions people have about Wi Fi now are the same ones we had in ’93 and ’94 about the Internet. Skeptics say it doesn’t scale, it’s not secure, it’s not industrial strength. It’s the same things people said about the Internet. But there’s no stopping Wi Fi. It’s a grassroots technology, totally distributed, standards based, global, with nobody in charge. Those are the reasons the Internet has flourished. And the implications are huge.”
A related story talks about WiFi as the “Venture Crowd’s New Quarry”.
“There are a lot of different ways to play this game,” says venture investor Tom Blaisdell, a partner with Doll Capital Management of Menlo Park, Calif.
While there are some similarities between the Internet boom and the Wi-Fi wave, the money men have come to expect delays and may be more prepared to wait for their returns this time around. But they do expect their Wi-Fi start-ups to preserve cash and focus on business models that can generate revenue.
“I think all venture investments now have an eye toward capital efficiency and are targeted toward more well-defined problems,” says Blaisdell.
What’s more, when start-ups are developing breakthrough technologies that don’t lend themselves to self-sustaining business models, venture capitalists are realistically guiding their companies to plan to be bought, “as opposed to trying to go public,” Blaisdell says.