The Path to Wi-Fi Profitability

The insatiable demand for smartphones, tablets, and other connected devices is generating staggering amounts of mobile data and placing a crushing burden on networks. One barometer is the recently released Cisco Visual Networking Index (VNI), which predicts that global mobile data traffic will increase 13-fold from 2012 to 2017, reaching 11.2 exabytes per month. The study also predicted that two-thirds of all mobile traffic will be video by 2015, and an additional 20 percent of this traffic will be devoted to both the mobile web and mobile data.

In parallel, we are witnessing a “perfect storm” in both Wi-Fi availability and customer acceptance that is resulting in a worldwide rise in the popularity of Wi-Fi. Consumers can now readily use their numerous Wi-Fi enabled devices in their homes, offices and increasingly in many of the other places where they spend their lives. Mobile users are actively searching out Wi-Fi connectivity as a cost-effective and adequate substitute or complement to mobile access to the Internet.

Based on this Wi-Fi “perfect storm” and the explosion of mobile data traffic traversing their networks, Service Providers realize that they now need to pay attention to Wi-Fi. In our conversations with SPs around the world they now recognize that that Wi-Fi is more than just data-off load and needs to be part of an integrated access strategy and architecture. However, they are all anxious to understand how they can make money from Wi-Fi. They want to understand what are the winning Wi-Fi business models?

Cisco views the Wi-Fi monetization opportunities as a pyramid, or set of layers. Each of the layers supports the subsequent layer above. Not only is it extremely difficult to make a compelling business case for a stand-alone layer without successfully implementing some of the business models in the previous layers, but it is not in the SP’s strategic interests to focus on only one of the layers. However, the SP and its customers derive increasing value as they move up the Wi-Fi Monetization Pyramid.

The core layers of Wi-Fi monetization opportunities in the pyramid, starting at the bottom, include:

Baseline – using Wi-Fi for broadband retention or mobile data offload offer a very compelling return on investment, largely based on cost reductions, to justify further investment in other layers of monetization.

New Revenues – leveraging the Wi-Fi network deployed in the Baseline layer to offer premium connectivity services, managed hotspots or Wi-Fi roaming offers opportunities to generate significant new revenues from Wi-Fi.

Value Added Services – increasing new opportunities are emerging to leverage the Wi-Fi network developed in the previous layers to provide new and innovative services related to advertising, location, analytics, retail store interactions and special venues, such as sporting facilities.

The recent white paper Wi-Fi: Service Providers Can Make Money with New Business Models by Cisco IBSG describes each of these business models in much more detail – laying out the economics and providing case studies of success operators.

The rapid growth of mobile data and the popularity of Wi-Fi have created a number of new and innovative money-making opportunities for SPs. The question is no longer “Can SPs make money from Wi-Fi?” Rather, it is “Where should they focus their efforts, and when should they deploy?”  By methodically climbing the layers of the Wi-Fi monetization pyramid, SPs can create compelling new business models and sources of revenues and business benefits to readily justify investments in building robust Wi-Fi networks and operational capabilities.