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Thursday, June 29, 2006

A Business Model That Ought to Take Off

By William Trent, CFA of Stock Market Beat

Tom Evslin writes about a new business model for sharing WiFi access.

FON is a commercial/cooperative worldwide WiFi access network. Huh? Actually it’s an interesting idea and a great laboratory for pricing models.

Foneros are members who’ve agreed to share their Internet access through their WiFi routers. If you’re a Fonero, you can be a Linus and allow other Linuses to use your access free in return for free use of all FON hotspots. Or you can be a Bill and charge nonLinuses for use of your access. Currently the rate is 3 Euro/day. The Bill keeps half and FON keeps the rest.
(For my readers who are not up on blogosphere ingroup jokes: “Linus” refers to Linus Torvalds who started development of Linux, the open source operating system; “Bill” is Bill Gates who charges for his operating system – and puts the resulting profits to good use.)

You become a Linus or a Bill by installing special sharing software on your existing Linksys (subsidiary of Cisco) WiFi router. To encourage growth of the network, FON is offering special Linksys routers – they call them “social routers” - with sharing software preinstalled for $5 in the US and 5 Euro in Europe (not available elsewhere). Shipping and VAT are extra ($8 to US). There is a penalty if you don’t add your new router to the network to discourage freeloaders from taking advantage of the subsidized router offer.

Aliens are members like me who are not sharing a router. We aliens always have to pay the 3 Euro/day fee for access to hotspots. If we sign on to a Linus hotspot, FON gets all of our fee. If we sign on to a Bill hotspot, the Bill gets half.

So FON itself has a real business model although one that has yet to be proven. I am going to become a Linus as soon as my social router arrives. Then other Linuses can share my Internet access free and I can log on free at any FON hotspot, even those that belong to Bills.

Here’s where the pricing gets interesting. Remember, I can choose to be either a Bill or a Linus. In my case the choice is easy. My location is isolated and few people will use my connection. But I travel so free access to other connections is valuable to me. If I lived in a more urban setting, I might have decided to be a Bill and see if my revenue offset the roaming charges which I would have to pay as a non-sharer. If you don’t ever travel with a WiFi equipped PC or other device, you clearly want to be a Bill.

This business model could cause open source/crowdsourcing to take off even faster. Consider movie downloads. If the studio sets up a hosted site it can control who downloads the movie and how much they pay, but have to be able to supply enough storage and bandwidth to accommodate the users.

The illegal model, such as bit torrent, spreads the storage and bandwidth to multiple users who “share” their files, along with their storage space and connection.

An interesting business model would be to allow users to buy a version of a movie that was authorized for resale. Then they could be compensated for their storage and bandwidth and relieve the studios of this burden. Everyone could be a winner, and distribution costs would likely plummet.

http://stockmarketbeat.com/blog1/
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