February 6th, 2006
Neither a Linus nor a Bill be...?
FON’s getting a ton of coverage today, and deservedly so. It’s a bold project to create a vast, indeed global, shared Wi-Fi network. Founder Martin Varsavsky’s blog posting about the company’s raising funds from some big names in Net companies and among VCs is at the swirling vortex of an intense conversation.
My home and office is 35 miles from the nearest shared FON Wi-Fi access point, 102 miles from the next nearest FON access point, 239.4 miles from the next and, then, I’d have to travel 531.1 miles"It’s a small world, but I wouldn’t want to have to paint it." to get to the next Wi-Fi I’d be able to use if I volunteer my Wi-Fi to the project (to use the patois of the project, to become a "Fonero"). Problem is, I don’t have a compatible wireless router and, even it would cost only $25 to add one, I am not interested in messing with my multi-network Wi-Fi installation, which is temperamental and already open.
I point this out not to condemn or pull the sheets over an already-deceased project, but to point out what a very long way the project, which is ambitious and apparently well-intended, has to go. With Wi-Fi access points covering a few hundred square meters at best, the $21.7 million the company raised from Google, Skype, Sequoia Capital and Index Ventures, isn’t going to go very far. I’m largely of the same opinion as Glenn Fleishman, who says he doesn’t buy that the model will work.
The marketing expense of building a global network is greater than the capital raised. We also know, based on Varsavsky’s posting, that the company is subsidizing at least $25 of the cost of new access points for some network participants. Assuming that the company can deploy one-third of the capital raised to build out its network after covering operations and marketing costs, the company can afford to put only 289,000 accesss points into the market. If you assume that the typical 802.11b access point can cover roughly 1000 square meters, that’s only coverage for a few hundred square miles.
To take a line from the comic Steven Wright: "It’s a small world, but I wouldn’t want to have to paint it."
Then there is the problem of managing such a large mesh network and resolving conflicts between access points. Hard to do. So, even less of the $21.7 million is going to be available for subsidizing access point installation.
I find the business model charming, but ultimately impractical. It offers three types of users three forms of economic value. "Linuses" (after Linus Torvalds, principle developer of Linux) can share their access point in exchange for free access anywhere on the network; "Bills" (after Gates, really rich guy) can trade their access point for a share of fees paid for access, and; "Aliens" (as in, "not part of the network") can pay to log on. Clever and a model that can easily be adjusted to accommodate changing revenue mixes.
That Google is involved, which has its own VPN client that will tie users to their advertising services when they log in, suggests to me that a very large amount of revenue could be put in play by the FON project. I think, therefore, that the system will face a challenge when a tide of Linuses realize that there is revenue of which even Bills aren’t getting any share.
If the Wi-Fi network is serving as a secure entry for Google, allowing Google to collect even more personal information and tie its advertising to network access, especially to facilitate deeply localized ad placement, FON’s real revenue model will have very little to do with access fees paid by Aliens.
Instead, FON seems poised to be the last mile carrier that is subsidized by Google, Skype and others. It’s infrastructure, because it would be mostly donated, is cheap enough to make a viable economic foundation for an alternative network.
But that only creates a question of whether the user wants to trade personal information to Google in exchange for access or if they want to pay a "traditional carrier" for access.
Mitch Ratcliffe is a veteran journalist, media executive and entrepreneur. See his full profile and disclosure of his industry affiliations.
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