Look, ma, no wires

When John Wooley told his corporate financial managers that he wanted to invest in a new broadband wireless technology for Internet access, then give it away for free to customers who visited his stores, he ran into a few skeptics. “They wanted to know return on investment, but I said I thought it could attract new customers,” he says.

Wooley is president and CEO of Schlotzsky’s Inc., an Austin, Texas-based chain of some 650 sandwich shops with a bent for the uncommon, from its unusual name to its unique assortment of food and, now, free broadband wireless fidelity, better known as wi-fi, for everyone in or near a Schlotzsky’s Deli. After several months of testing wi-fi networks in 10 restaurants, Wooley surveyed his customers and the results underscored his initial hunch: A significant number were coming in just for the wi-fi, which enables them to quickly download Internet content, including streaming media, music recordings and other data-intensive files to their personal laptops or PDAs or to one of Schlotzsky’s iMac computers.

“We’re seeing a really positive response from customers of all ages,” Wooley says. And his hunch about new customers was right: 6% of customers said the main reason they were in a Schlotzsky’s was for the wi-fi Internet availability. “The revenue those customers bring in is 20 to 25 times what we spent to install wi-fi,” he says. “I’m feeling pretty good about that.”

Tapping into frustration

Schlotzsky’s isn’t alone in installing wi-fi as a way to lure customers. Retailers will account for nearly half of the expected growth in computer chipsets that enable computer and network devices to send and receive wi-fi signals, according to a study by Allied Business Intelligence Inc. (see related story, page 33). Meanwhile, local wi-fi networks are being established throughout the U.S. and other areas of the world by T-Mobile USA Inc., a unit of Germany’s Deutsche Telekom AG, and by Cometa Networks Inc., a joint venture recently formed by AT&T, IBM Corp. and Intel Corp.

As more people experience the web and expect good browsing performance, high-bandwidth access to the Internet is becoming more in demand. And by supplementing the general rollout of broadband to homes by offering wi-fi access, retailers can put themselves in the vanguard of a hot trend that makes high-bandwidth web access available to virtually anyone. “It has tapped into a general frustration over broadband, which was supposed to be in everyone’s homes by now,” Wooley says.

Schlotzsky’s is even going beyond the customer service route by making wi-fi available to anyone in homes, libraries or nearly anyplace close to a Schlotzsky’s Deli, where wi-fi antennas are being mounted on the roof as well as inside so as to reach the maximum number of users, whether they like Schlotzsky’s sandwiches or not. Partly because of the pilot program’s proximity to the University of Texas and a technologically advanced population, the community response was swift, even before Schlotzsky’s publicized it. “People locally figured it out,” a spokeswoman says. “And then newspapers started calling. We didn’t even advertise.”

Applications of wi-fi are just beginning to roll out among retailers in addition to the pilot program at Schlotzsky’s. Federated Department Stores Inc. is providing wi-fi Internet access for free in juniors’ apparel departments in many stores, including Macy’s and Bloomingdale’s, as part of efforts to attract younger customers. Circle K convenience stores, Borders Book and Music stores and Starbucks coffeehouses are using their wi-fi installations to provide Internet access for a fee. Starbucks managers and employees will also use wi-fi to communicate with corporate headquarters. And Unicru Inc. is installing wi-fi-based job-application kiosks in retail stores. Indeed, wi-fi’s long-term use may become increasingly important as a non-consumer application: providing store managers and employees with portable high-bandwidth Internet access to corporate headquarters, for such tasks as filing sales reports or receiving corporate training through e-learning courses (see related story, page 32).

Unlimited access, high speeds

Wi-fi applications also present retailers with opportunities to generate advertising revenue by selling ad space on the entry portals to their wi-fi networks, suggests a spokesman for NetNearU Corp. NetNearU recently released its NNU Runtime Engine for Wi-Fi, which is designed to configure computer terminal kiosks with wi-fi access and to coordinate with NetNearU’s Adtrackos application for uploading and tracking online ads. NetNearU lists Federated among its customers, though a Federated spokesman says it is too soon to say how the retailer would develop further use of its wi-fi network or if that would include the placement of ads.

Wi-fi, based on a wireless specification defined by the Institute of Electrical and Electronics Engineers Inc., extends high-bandwidth Internet access from a fixed line to wireless. A device connected to the line conducts the wireless signals that properly equipped computers emit to the broadband land line. Anyone within the range of a wi-fi network, or hot spot, can log onto it from any desktop computer, laptop or handheld device configured for wireless web access. Many new computers come pre-configured for wireless Internet access, requiring only the purchase of a PC card which is easily inserted into a computing device and is usually available at consumer electronics stores for under $100.

Compared to the more conventional means of accessing the web from public places like retail stores and restaurants—where web access, if it’s available at all, is usually hampered by slow downloads and a limited number of wired ports—wi-fi enables virtually unlimited points of access at high download speeds. And because it’s wireless, retailers don’t have to extend high-bandwidth phone lines to each computer jack. Not only does that save enormously on installation costs, but it also leaves retailers with the flexibility to alter store layouts and merchandising displays without having to worry about a complex installed network of high-bandwidth wires.

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.

IRCE 2008 Conference Multi-Media CD-ROM

High-caffeine rollout

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.

Beefier security

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.

paul@verticalwebmedia.com