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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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February 11, 2008 3:00 PM

Starbucks' free Wi-Fi: What took so long?

Posted by Brier Dudley

Fixing the Wi-Fi mess at Starbucks had to be one of the things on Howard Schultz's "to-do" list when he jumped back in to right the ship. I wonder if he'll be tempted to go overboard.

Apple enthusiasts are fired up because it gives them more places to get acceptable download speeds with their iPhones. Starbucks will also have the flexibility to do more content deals like its iTunes click-to-buy offering.

It's a good deal for AT&T and its customers, but this is really all about Starbucks. It's fixing a problem at the chain, pulling more customers into the stores and creating new opportunities.

I remember when the Tully's near my house began offering free Wi-Fi a year or two back. The store is across the street from a Starbucks (and three doors down from another Starbucks, and kitty-corner from Peet's and Caffe Lladro, but that's another story ...).

The Tully's manager told me sales went up about 20 percent after the store switched from paid to free Wi-Fi. But he had some issues with Starbucks customers who would carry their coffee over to his store and poach the wireless service.

Starbucks was probably getting a cut of the $6 per hour or $40 per month that T-Mobile charged for wireless in its stores, but that pricey service was driving foot traffic to other stores. The arrangement made more sense in the early days of wireless when it was more expensive to provide the service, but those times have passed. When it came time to renegotiate, it was probably hard for T-Mobile to compete with AT&T, which is hellbent on extending its data services.

Starbucks must also be looking for ways to be sure its stores still offer value when consumers cut back on spending during the downturn. First, it experiments with $1 coffees, and now free wireless. The latter makes its $4 drinks seem like a better deal, maybe even justifiable if you get some work done while you sip.

But the genius of the deal announced today is the way Starbucks is authenticating its wireless customers. To get the W-iFi, you'll have to "check in" with a Starbucks card. That gives Starbucks a big new opportunity to upsell, an opportunity that's far bigger than the iTunes deal.

In effect, the Wi-Fi becomes a storefront within a store, with a built-in transaction system.

Designer Phil Lu is getting attention online today for a mocked up Starbucks store application he designed for the iPhone. It looks great, but Lu suggested a swipe transaction system that displays a bar code on the phone screen, which you then point at a scanner. Starbucks is putting in place the components of a more elegant system, with no scanner or barcodes required.

When you fire up the laptop or mobile device, Starbucks could greet you with a welcome screen that identifies you by name if you use a credit card to load your Starbucks card. That screen can be used to offer music and other content -- maybe even to order additional beverages. You've signed on with your Starbucks card, so it knows how much credit you have, so you should be able to click to purchase and have the amount deducted from your card.

That system would be so potent, it could tempt Starbucks to interrupt your browsing with offers. There may even be ads luring you back to the Wi-Fi storefront. That seems fair during the two free hours, but it would be obnoxious for those who pay for longer usage.

AT&T broadband customers, who are getting free access at Starbucks stores under the deal, may resent commercial intrusions into a service they feel they paid for through their AT&T subscriptions.

But if Starbucks gets obnoxious with wireless come-ons, you should be able to walk across the street and find a more palatable wireless service.

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