Starbucks: Your Wireless Computer Showcase?

By Eric Griffith

August 20, 2002

The coffee shop chain is announcing a deal to expand Internet access with partners T-Mobile and Hewlett-Packard, perhaps making cyber cafes in the United States a commodity instead of an oddity.

Seattle, WA-based Starbucks Coffee, the mega-coffee chain, will be announcing a new deal with Hewlett-Packard and T-Mobile tomorrow.

This pact, building on relationships Starbucks already had in place, will likely expand not only T-Mobile's wireless foot print, but could also turn Starbucks into the largest cyber cafe chain ever, as HP/Compaq products will be provided for use by coffee drinking customers. Whether the provided HP equipment will take the form of kiosks, rented products, or something else should be announced during the press conference tomorrow in San Francisco.

The question is, where will the revenue from this venture come from?

"It will be the "after the morning rush" people providing the revenue," says David Chamberlain, Research Director for Wireless Internet Services and Networks at Probe Research. "It could help Starbucks expand and pull in revenue from the people who will tinker on a laptop... and want a cappuccino."

Chamberlain is skeptical, however, that any Wi-Fi hotspot network in a coffee chain can sustain itself, simply because of the numbers. "Consider all the laptops [available] and all those going to Starbucks with laptops, and that have an 802.11 adapter, and that are willing to pay the price [for wireless access]. There's a finite number; there's a small market you're trying to extract numbers from."

What benefit will there be for HP, now the top computer seller? There is some speculation that the Starbucks locations could be used by as a display case for selling its wares.

Sarah Kim, Analyst at the Yankee Group, cautions the partners to move slowly. "Providing products is a dangerous move -- walk before we run here," she says. "They need to get the WLAN started again, get the branding and awareness of the service [in place], and target the users already familiar with it."

How It Began

The genesis of this latest pact began with separate deals Starbucks already had in place with Compaq, which is now part of HP, and MobileStar, which went under and had its assets acquired by VoiceStream Wireless.

In May 2001, Compaq announced it would provide Starbucks locations with iPaq handhelds running the Pocket PC operating system for use by customers in 4,100 stores over five years. The expectation was for users to get not just Web access but also a platform for streaming audio and video on-demand. The deal was rolled out in at least Dallas, San Francisco, New York and, or course, Seattle.

Earlier in 2001, MobileStar Network of Richardson, TX, began providing a wireless infrastructure for Starbucks, frist using frequency hopping (FHSS) technology, and later moving to 802.11-based direct-sequence spread spectrum (DSSS).

In late 2001 VoiceStream Wireless, itself a subsidiary of German phone company Deutsche Telekom, made plans to acquire the bankrupt MobileStar and its network. In March of this year the company announced a name change to T-Mobile, unifying its cellular and hotspot brands under one logo. The plan is for WLAN services to be a compliment to the existing nationwide GSM/GPRS service.

T-Mobile currently has hotspots in airports and even some Starbucks locations in San Francisco and New York. T-Mobile sells access in everything from per-minute plans to local subscriptions to national subscriptions.

No Taste for Coffee

As VoiceStream was announcing its MobileStar take over, it was already at work on some Starbucks equipment, specifically at the location in Pioneer Courthouse Square in Portland, OR. The park, the sight of the city's first real schoolhouse and sometimes called Portland's living room, is used daily by traveling commuters, tourists, shoppers, students -- and now by competing wireless networks.

The Portland Oregonian reports that the Personal Telco Project, the grassroots effort to provide free 802.11-based Internet access in a "cloud" around downtown Portland, is at odds with the local Starbucks in the square.

There are about 70 donated access points for the project in the area, one of which is in an office over Pioneer Courthouse Square. New users coming for free access to the park, however, could find themselves connecting to the Starbucks/T-Mobile connection. What's more, since both providers are using 802.11b technology -- they're running in the same 2.4GHz band -- performance is already taking a hit.

Starbucks and T-Mobile reportedly said they weren't aware of the Personal Telco presence there, but have other wise made little statement. With rollout to thousands of locations to come, the coffee giant should be expecting some similar problems in other locations close to neighborhood area networks.

Don't Say Cyber

Kim says, to make sure Starbucks doesn't be come too wrapped up in the technology involved in this pact, the company should "stay away from the world 'cyber cafe'." This echoes the words of Starbucks chairman Howard Schultz from the initial Compaq deal in 2001. He denied that Starbucks would become a cyber cafe at all, saying "It will be the antithesis of that."

Kim adds that Starbucks should stay focused on what it does best. "Keep the core business of Starbucks -- coffee-- and maintain those margins," she says. "This will be a passive role out. [Wireless access] should not disturb the Starbucks experience."

After all, unlike the nascent market for wireless hotspots, coffee is a proven money maker.

Eric Griffith is the managing editor of 802.11 Planet.

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