In its second-largest acquisition, Amazon buys the company for $970 million.
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The cost to implement a wi-fi network in a retail location depends on the range of applications involved. Schlotzsky’s used its own IT staff to install wi-fi at a cost of $4,000 to $5,000 per location. But Wooley figures the new revenue from customers attracted mainly by wi-fi amounts to about $100,000, or 20-25 times the cost of the wi-fi installation. The average ticket in a Schlotzsky’s is $6, and it handles about 300,000 customer orders per year. The only additional costs related to the wi-fi program are the three to six iMac desktop computers for each deli, though Schlotzsky’s had planned to purchase these with or without wi-fi. Retailers run up still more costs if they want to build in credit-card billing applications or tighter security to prevent unauthorized access.
Wi-fi’s ease of implementation-along with the customer service and operational advantages perceived by retailers-can result in fast roll-outs across broad retail environments. Starbucks Coffee Co. has undertaken the most ambitious roll-out to date; it launched wi-fi in about 1,200 coffeehouses last August and rolled it out to 2,000 locations by the end of the year. It’s also running pilot programs in London and Berlin. Its wi-fi program is being handled under a contract with T-Mobile USA.
“This service is a natural extension of the Starbucks coffeehouse experience, which has always been about making connections with the people and information that are important to us over a cup of coffee,” Howard Schultz, chairman and chief global strategist, said last summer as his company launched wi-fi in its restaurants.
Each wi-fi implementation operates as a wireless local area network. Sponsors of wi-fi implementations can charge for access by also configuring a billing system that, for example, requires users to log on by entering a credit card account number.
To access a Starbucks wi-fi hotspot, customers must first establish an account with T-Mobile USA, which offers a range of prices based on the amount of access time and whether access is local (typically meaning a single Starbucks coffeehouse) or national. For example: unlimited access time runs $29.99 for local and $49.9 9 for nationwide. Customers can also take a pay-as-you-go option at $2.99 for 15 minutes of access time.
T-Mobile is also working on another rollout, due to be completed by the end of the first quarter, at 400 Borders Books stores. Circle K is developing a kiosk-based program with NetNearU.
Some analysts expect the retail industry to widely adopt wi-fi, which has already served as a starting point for the industry’s underlying technology. “Wi-fi’s roots have been in retail warehouse and distribution,” says Chris Kozup, an analyst with Meta Group Inc. “The technology is very well-ingrained in the retail industry overall.” He adds that inventory and POS scanning devices and related inventory management systems, for example, have used the 2.4 gigahertz wireless frequency in wireless LANs that is at the base of wi-fi.
The retail industry’s history with wi-fi, he adds, has already led to improvements that are beginning to address wi-fi’s major shortcoming-weak security, which allowed sophisticated hackers to steal credit card numbers and other sensitive data. Some retailers aborted early applications of wi-fi to transfer POS data to warehouses after they discovered that hackers close to a store could easily break into the wireless network. Those problems are now being addressed in new security encryption technologies that offer superior protection to the WEP (wired equivalency privacy) already built into wi-fi. “The native security mechanisms within wireless LANs are not sufficient to protect network integrity,” Kozup says. “With plain-vanilla wi-fi, you only get WEP, which can be cracked in 30 minutes.”
When customers at Starbucks or other retailers enter their credit card numbers to access a wi-fi network, their account data is protected by the same SSL encryption technology that typically guards web-based credit card transactions, Kozup says. But other information, such as customers’ passwords, won’t be as secure without additional security applications, he adds, because the only protection inherent in wi-fi for non-credit card numbers is through the easily cracked WEP. A more secure encryption technology, the Temporal Key Integrity Protocol, or TKIP, is expected to be available soon, followed later this year by an even higher level of security through the Advanced Encryption Standard, or AES. TKIP and AES security will be built into wi-fi routers and other devices available from companies including Cisco Systems Inc., Symbol Technologies Inc. and RSA Security Inc.
Another growing concern, however, is that as wireless usage increases, so will interference between networks competing for the same wireless frequency. Wi-fi so far has been implemented in the IEEE’s 802.11b frequency specification, which is also used by Bluetooth handheld devices, doorbells and baby monitors. An alternative under development is the 802.11a wi-fi specification, which is expected to be far less crowded when it becomes available as early as this year. But because 802.11a will also be less ubiquitous than 802.11b for some time, the most effective wi-fi implementations will operate with a dual frequency mode that will automatically select the best available frequency, Kozup says.
In the meantime, retailers like Starbucks and Schlotzsky’s say they plan to continue developing wi-fi and using it to build strong relationships with customers. Customers who log onto a Schlotzsky’s wi-fi hotspot today go straight to the home page configured for their computer. But the restaurant chain is working on an entry portal that will become the first page that appears. “Part of our goal is to say, ‘Welcome, you’re on the ’Net for free, compliments of Schlotzsky’s,’ ” CEO Wooley says.
In at least one location, at a Schlotzsky’s Delis in Austin, the Schlotzsky’s wi-fi portal page could greet a customer sipping a cappuccino across the street at a Starbucks. Because the Schlotzsky’s wi-fi signal extends across the street, customers in Starbucks could opt to access the free wi-fi instead of paying for it. Although such situations could become more common as wi-fi proliferates under different business models, Starbucks says it’s not concerned. “We feel the more people using this type of service, the more the entire industry will grow,” says Anne Saunders, vice president of Starbucks Interactive.