Software as a Service a Winning Model for Hotspot Provider

By Gerry Blackwell

October 09, 2008

While its revenues may not be out of this world, six-year-old hotspot management service provider, Sputnik, says it will start showing an operational profit before the end of this quarter. Not bad for a company with its roots in free and open source software.

Sputnik Inc. has been orbiting the public access Wi-Fi market since 2002, offering browser-based tools for managing hotspots. Now, says founder and CEO David LaDuke, mission success is on the horizon.

Not that Sputnik has grown enormous or anything. It’s still a lean, mean entrepreneurial machine, with fewer than ten employees. But it evidently hasn’t just been flying in circles. LaDuke says Sputnik will start showing an operational profit before the end of this quarter.

Not bad for a little start-up with a one-track mind.

The company now has “well over 1,000” paying customers, some with hotspot networks approaching 1,000 nodes. One, for example, uses Sputnik to provision Wi-Fi service in high-end boutique hotels in UK.

“We’re told Bill Gates surfed using Sputnik when he was staying at one of these fancy hotels,” LaDuke says. “And also Demi Moore.”

Ah, the icing on the cake!

Sputnik has been through some changes in the last couple of years —a fundamental change in business model, an aborted fling at going public—but managed to keep its eye on the ball.

Its mission was always to help hotspot operators manage and control their networks and subscribers. In the beginning, it sold licensed software that operators ran on their own servers. But a couple of years ago Sputnik started moving to a Web-hosted model.

Today, with the exception of a few long-time customers, it exclusively sells SputnikNet, the company’s flagship software product, as a service, priced as low as $200 per Sputnik-enabled device per year.

Customers can sign up, connect any number of access points to the Net—from one to thousands—in any number of locations and instantly begin using SputnikNet’s browser-based interface to monitor and manage APs and subscribers.

The access points run the Sputnik application in firmware. The company sells a line of Ubiquiti NanoStation2 APs with the firmware preloaded. It can also be flashed into compatible APs from other manufacturers, including Linksys.

Customers can authenticate subscribers any way they want, or not at all—Sputnik supports free, pay and sponsorship business models—and monitor the condition of and activity on all APs from a single console.

So why the move to the Web-hosted model—other than Sputnik’s unsurprising desire for recurring revenue?

“From the customer’s perspective, it means we take care of all the hassle of setting up the server and doing everything required for its care and feeding, such as backups, software updates and prevention of viruses and other nasty things,” LaDuke says. “Customers are happier.”

They also don’t have to provision their own domain names. Sputnik provides that too. And adding a new Sputnik-enabled device is as simple as plugging it in to the Internet. Device and Sputnik find each other and talk.

“It makes their lives easier,” LaDuke says. “But frankly it also makes our lives simpler too. It’s so much easier to support customers when you have a standardized server environment and you know it well. There are no surprises.”

Did we mention the huge attraction for Sputnik (and every other software as a service provider) of captive customers and a recurring revenue stream?

Speaking of which, Sputnik’s revenues continue to grow from quarter to quarter. “It’s not a hockey stick, it’s not like a steep ramp, but we are seeing steady, consistent revenue growth,” LaDuke says.

He won’t reveal much more about the company’s finances, other than to say that Sputnik will soon reach break-even on a month-to-month basis. (He won’t say when investors will begin to see a positive return.)

This reticence is despite the company’s Web site—chronically out-of-date as it turns out —indicating that Sputnik is traded on the OTCBB. It’s not. The company went through the process of listing itself and offering shares last year, but got no action, LaDuke admits.

“As a small tech stock, we found that our access to capital was not improved by being listed,” he says. “So we huddled with our investors. We said, ‘Look, this is not giving you the liquidity or us the access to capital we wanted. And there’s a huge amount of overhead involved to maintain a filing.’”

“So we took it private. We were really only public for a few months.”

Customers could probably care less. What attracts them to Sputnik, as opposed to competitors, LaDuke says, are a few key differentiators.

He includes among his competitors direct rivals such as Second Rule LLC (IP3 Networks) and Cisco Systems, but also companies that provide overlapping products and services, such as Boingo, Fon, and Nomadix Inc.

How is Sputnik different?

On the business relationship side, it leaves customers completely free to adopt whatever business model they choose. It supports all models. And it doesn’t ask to take a cut of revenues, charge transaction fees, or try to force customers to use its billing platform or branding.

It supports RADIUS (Remote Authentication Dial In User Service) for authentication, but has developed an architecture that allows authentication to be done at the Sputnik server rather than at the access point, making it easier for customers to manage multiple sites.

It also uses the instant messaging technology Jabber (now referred to as Extensible Messaging and Presence Protocol) for messaging between APs and Sputnik’s data center. This allows it to efficiently send telemetric information about the access point and deliver rich reports to customers about activity and state.

“We cross some typical categories,” LaDuke says. “Triple A [Authentication, Authorization, and Accounting] and network management: we kind of blend those things.”

“We’re not a deep, deep network management system—we have a very specific focus for network management. But the fact that you can do it all from one application is really useful to our customers.”

The Sputnik architecture also enables new applications at the network edge, such as USB drives attached to access points to allow streaming of rich media without having to go over the public ‘Net.

This will be a crucial capability for enabling new sponsorship-based business models, LaDuke says. A car dealership, for example, could offer a free service to customers waiting for their cars to be serviced, but make them look at a 30-second high-resolution video clip of the latest new car models before letting them surf.

The Sputnik differentiators have been enough to attract a broad range of customers, including hotels, airports, schools, and apartment and condo complexes. The “sweet spot,” though, LaDuke says, is customer-facing retail operations.

Major customers include Jack in a Box drive-in restaurants, Jiffy Lube auto service garages, and The Coffee Bean & Tea Leaf, a chain of independently-owned coffee shops.

“But one of the things that’s unique about us is that we also have lots of little customers, customers often with just one access point,” LaDuke says. “Which is interesting because it seems to us the real benefits of SputnikNet don’t kick in until you have at least two. But we have lots of customers with just one.”

And then there are thousands who pay nothing for SputnikNet Express, a free limited version of the product that allows them to operate a single access point. They can also sign up for multiple Express accounts and manage more than one hotspot, just not from a single console.

Sputnik intends Express as “a taste test” for prospective commercial users, and to support freenet sites. But some Express users have mounted commercial applications. One end user recently reported to LaDuke that he had encountered a SputnikNet Express-powered hotspot in an airport in Germany.

Sputnik may not have the infrastructure of a major communications conglomerate. It has only one point of presence, for example. But it has redundancy in its server farm (hosted by Pacific Internet Exchange in San Francisco), and it does provide a service level agreement (SLA), with remedies that include refunds—never resorted to, LaDuke hastens to point out.

And it has thought through the implications of hotspot networks dependent on connection to its POP. If the connection were to be lost, SputnikNet defaults locally to a free network. Subscribers already logged in would notice nothing. Subscribers that log in during the outage would have to log in again and authenticate when connectivity was restored. Customers also have the option to limit free access during an outage.

Sputnik appears to be on course, if not for wild, over-the-top success, at least solid, sustainable growth. It needs and intends to continue improving service levels, support for new applications and business models, and operational efficiency, LaDuke says.

Heck, he even plans to update his Web site at some point.

 Gerry Blackwell is a veteran technology journalist based in Ontario, Canada.



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