It's Your Business Plan, Stupid
August 18, 2008
In order to succeed, municipal wireless projects must think like entrepreneurs--not philanthropists--and have a sound business plan in place.
Anne-Marie Fowler brings an unusual background to the wireless broadband business. She was a wealth advisor at Morgan Stanley and Prudential in Silicon Valley.
"My clients worked in Silicon Valley during the tech boom," she says. "They became first-time philanthropists." So she moved from advising them on how to make wealth to advising them on how to spend it.
She calls the projects these philanthropists were interested in "digital inclusion." The goal is to bring the internet to those who don't have it,--but it's no use building a network that will disappear.
Fowler begins every project with a basic premise: all city wireless projects are business endeavors; they are not charitable. These endeavors need to obtain cash investment, lines of credit--and revenue streams to back both.
ISPs should note, she says, that they may not need to get cash from subscribers because, as local businesses with unique connections, ISPs have an advantage over the telcos.
"[Local ISPs] are an ideal content partner to local businesses, chambers of commerce, local journalism outlets, tourism services, schools, universities, and cultural offerings. They can be real members of the community, real partners in local advertising, marketing, and content delivery. These are monetized streams. A model can be built around this, that's really unique, completely different from the basic connectivity service that consumers get from the big telco," says Fowler.
Advertising run through a major search engine, while easy, won't carry an ISP's revenue model by itself because it's based upon an unprectable revenue stream. On the other hand, a stable relationship with a local advertiser can provide the reliable revenue stream that a network needs.
Should ISPs expect telco opposition to municipal projects? Yes, but not because ISPs are a threat to the big telco, but because they represent a different, "disruptive" way of doing business. "Think of why you go to your local pizza restaurant over the national chain. Because they know you, because they offer you a targeted, local experience and message," says Fowler.
The ISP should start with that thought and build its advertising/services offering from there. "Don't ask how you can compete with the telco. Ask, what do I offer that the telco does not? How can I compliment the telco?" advises Fowler.
The muddled muni message
Fowler has been shocked, over and over again, to find municipalities opposed to introducing basic business principles to wireless projects. Municipalities want the result, but do not want to discuss how the project will make money and how it will serve its customers, she says. The city wants to give away free wireless, but ends up demanding that the ISP give away free service. Those are two very different things.
The ISP is not a charity. The ISP is often a young, emerging business founded on new technology. Its survival depends upon its ability to prove itself, achieve positive cash flow, and innovate very quickly. It needs investment and credit. To get that, it needs a provable revenue stream.
"For a city to say, 'you have to build a free network and, oh, maybe we'll use it'it's not right to ask a little company to be Warren Buffett," she says.
"My advice to the city is: make your city the place where any small emerging business, ISPs included, can grow into a much bigger one. That will be a much greater source of pride for your city and will attract far more positive press than claiming free Wi-Fi," says Fowler.
The advantage of being or working with a non-profit
How could the not-for-profit sector serve as a catalyst? Consider the effect on small businesses in emerging neighborhoods.
In one community, she says, she brought in a digital kiosk company with a new technology offering that sought a test area. She also brought in a company that had a mobile payments product and another that specialized in stored value (debit) cards for unbanked communities. So where's the broadband?
"Businesses in emerging neighborhoods were paying $60 or more per month for cellular or landline service. A not-for-profit organized a group, seed-funded via social venture monies, to offer businesses something better for $29.95: broadband access plus the ability to accept credit/debit cards, and advertise both online and via the interactive kiosks," she says. "The ISP, offering connectivity to the services package, connected the pieces. It completed this success. This package wasn't charity. It was good business sense and could be offered citywide."
The goal was achieved, but profit was part of it. Business principles were utilized, not ignored. "We focused upon how broadband could expand local business success. We did so in a way that could serve all communities alike, rather than segregating certain people into a lesser offering. Wireless networks are not charity. They are about doing business more effectively."
Only a nonprofit could do this. "The city would not have been able to build these relationships as quickly under a government program and an ISP might not have the extra cash or time to spare to create the model and build the alliances and startup cash base," says Fowler.
Fowler says that cities unintentionally often block such innovative projects, preferring instead to oversee them via familiar government entities. The appropriate bureaucracies then get the credit.
This proposal was one such case. She says the city stated, after the project planning was underway, that it had billboard ordinances that prevented the project from being implemented, even though there were no billboards in the underserved areas. "Cities have great development objectives," she says, "but in order to achieve them, the city has to step aside and allow the private sector to go to work."
All too often, the city fails to recuse itself.
Think phones, not laptops
Funding service in underserved neighborhoods is often about finding an advertising model, not a subscription model. When ISPs pursue an advertising model, they often assume that they need to deliver search engine ads and that to do so, they need to hand out laptops. Instead, she says that ISPs and philanthropists alike should stop thinking about laptops, which are rare in these neighborhoods, and start thinking mobile phones, which are not rare.
"Work to enhance access to the mobile device with a local offering via the local ISP. Create relevancy and generate interest through what is familiar," says Fowler.
Once you set up a mechanism connecting local advertisers to cell phone ownersmany of them a young and desirable demographicyou cut out the search engine and you deliver relevant ads, which are worth more. When you connect local advertisers directly to your network, you obtain a reliable revenue stream that you don't have to share with Yahoo! or Google.
Subsequently, philanthropists can enable purchase programs for laptops and desktops for schools and homes, if the community wants them, with payment methods suited to the mobile device user.
Utilties serve everyone
Another way to pay for the network is to look at the needs of those businesses that are already present in the underserved community.
For example, a major local utility wanted to convert its meters to remote use. Clearly, they could contract directly with an ISP to do the build, with the utility providing capital and the ISP providing data service per meter. But the utility wanted to convert its users to online payments, to save money and paper, even in communities that did not have ready broadband access. The nonprofit stepped in and proposed a team of local banks and a nonprofit entity with a broadband mission to offer a mobile Web site and helpful daily instruction on utilities budgeting, saving energy, and making automatic timely payments online.
Fowler notes that the online/mobile payments module was developed as an educational endeavor by the not-for-profit. But the ISP, in agreeing to operate it, picked up a revenue stream, at minimal additional operating cost. It's a dual success.
If you're going to do this
When asked what an ISP should say to a city, Fowler replies that it's more often the city that contacts the ISP. In that case, the ISP should insist on a business agreement that allows it to make money. The ISP should insist on being a business, not a charity. This is not just for the ISP's sake; it also brings success to the city.
Insist on a project that a venture capitalist could invest in, she says. Since venture capitalists only invest in companies that can be sold, insist on something that could be sold, perhaps to an advertiser or local broadcaster whose advertising revenue stream you're disrupting.
Another good idea, all too often ignored: set up a pilot project. Don't build an entire network before you turn it on. Build a small piece, run it, and learn from it. There are small areas, such as universities or central business areas, that could be ideal locations for pilot projects.
Municipal wireless can be done, but not for free. That's such an obvious point we should not have to insist on it, but far too many people and cities are still trying to get something for nothing. The private sector and its innovative nonprofit partners know that you get what you pay for. Networks are built with cash and sweat equity and require revenue to stay alive.
Anne-Marie Fowler will be talking about the business side of municipal wireless projects at ISPCON Fall 2008, November 11-13, in San Jose.
- For more on muni wireless, read "Can Muni Wi-Fi be Free?," "EarthLink to Sell Off its Muni Wi-Fi Business," and "OKC Gets Muni Wi-Fi Right."
- For more by Alex Goldman, read "Insider Threat Detection and Response," "Spectrum Perspective," and "WISP Tips Part I."
- For more on WISPs, read "A Cold, Cold WISP," "A WISP Association Is Born," and "A Big WISP Merger."
Article adapted from ISP-Planet.com.