Hotspot Market Heats Up

While the number of hotspots [define] continues to grow, more than one-third of Internet households have not heard of the wireless access points. These findings, from Parks Associates, suggest a growth rate that is far exceeding demand.


Familiarity with Public Hotspot Services
Have never heard of 34%
Familiar with but never used 33%
Have heard of but not familiar 30%
Have used but not a subscriber 3%
Subscriber of services 0.1%
Base: 1,345
Source: Parks Associates

“The hotspot market is likely to suffer from a prolonged infancy, despite the rosy forecasts proffered by industry pundits,” said Yuanzhe (Michael) Cai, research analyst with Parks Associates. “Our latest consumer research suggests that approximately 3 percent of Internet users have used public hotspot services and only 5 percent of these users converted into subscribers. Although consumer familiarity with hotspot services has increased significantly since 2001, the adoption rate among Internet users has seen little improvement.”

These findings cast doubt on recent forecasts that claim approximately 5 million consumers in North America, the majority of which are in the U.S., will have used Wi-Fi [define] hotspot services by the end of 2003. “That number is simply unrealistic,” Cai said. “The most optimistic 2003 estimate of hotspot users in the United States should not exceed 2.5 million.”

eMarketer reported that the Yankee Group forecasts 72,480 hotspots in the U.S. by 2007 – doubling 2005’s estimate. Local governments are expected to drive the growth to more than 12,000 hotspots by the end of 2003, as access points are implemented in public areas such as libraries, parks, main streets and schools.

The eMarketer report included data from Dataquest Inc., a unit of Gartner, Inc., indicating that the majority of worldwide hotspots will be located in retail outlets (50,287) and hotels (11,687) by the end of 2003. Community hotspots are expected to grow from 5,637 in 2003 to 30,659 by 2005.

Meanwhile, Allied Business Intelligence (ABI) says in its report on Wi-Fi that global hotspots will grow from their current level of 28,000 locations to more than 200,000 within five years.

ABI says that while North America is home to more than 12,400 hot spots, the Asia-Pacific region is expected to grow at a faster rate in the next few years. The study focuses on commercial hot spots, inside coffee shops, fast food restaurants, airports, railroad terminals and other establishments.

“For the Wi-Fi market to grow over the next few years, several things have to happen. For one, roaming agreements between operators need to happen. Secondly, there has to be a clear single message to consumers on the value of Wi-Fi,” says Tim Shelton, director of wireless research for ABI.

“The greatest opportunity could potentially be with the cellular providers, because it will help them drive consumers to the data usage model,” says Shelton, adding that T-Mobile is currently the biggest operator of hot spots around North America, other operators include Wayport, and a host of smaller players.

Shelton said one private company making a major push into the Wi-Fi market is Boingo. “They are not strictly an operator, but more of an aggregator. They don’t own the actual network, but they enter to roaming agreements to offer Wi-Fi based services.”

And beyond wireless network service providers, if the Wi-Fi hot spot market grows, there will be other beneficiaries.

“The hotspot market certainly will provide opportunities for access point hardware manufacturers and other backend solutions,” Shelton said.

Despite the rosy market outlook, ABI’s Shelton does say that there are concerns about hackers being able to violate the integrity of Wi-Fi-based wireless networks.

“While there’s no question there will be growth, wireless security remains a must for the credibility of the hot spot market,” says Shelton.

Shelton expects that hotel chains, restaurant franchises and other national retail chains will potentially use hot spot technology “to drive customers to their doors and to capture a competitive advantage by offering an innovative wireless service.”

Starbucks, McDonald’s and Borders are three national chains which have gotten behind the wireless technology by putting Wi-Fi hot spots inside their commercial establishments.

Shelton said these companies believe it will provide added-value to their customers and predicts revenue generated from hot spot technology will rise from $59 million this year to $3.1 billion in 2008. Users pay either an hourly, daily or monthly fee to access Wi-Fi networks.

“Some of the issues facing the hotspot industry range from interoperability between hotspot locations to the need for operators and aggregators to acquire more users,” Shelton writes in his report.

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