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Generating Revenue with Free Wi-Fi | Part II: The Freemium Model and Tiered Bandwidth

Apr 23, 2012 11:00:44 PM

By Andrew Yorra, VP of Business Development, Eleven Wireless |

Applying the "Freemium" Model

In the technology realm, a common business model is to offer a free basic service and then offer a for-fee upgrade to a premium service. This "freemium" model is very popular with software downloads and online subscriptions, where a lite version with limited features is available for free and there's an option to upgrade to a full version with all the bells and whistles. Because the cost of providing the free service is somewhat nominal, these software companies are able to build their business around the 5% to 10% of free users who choose to upgrade. Hotels have numerous instances of this model already, such as with water, where guests can drink unlimited tap water, but if they want it filtered and in a pretty bottle, they must pay several dollars. Or, complimentary continental

Freemium Internet is one of the fastest growing trends in hospitality, where registered guests enjoy free basic Internet and can upgrade to a more premium service. There are four primary ways to offer a premium service: tiering bandwidth including higher class of service (also called prioritization), expanding physical access from just guest rooms and lobbies to the entire hotel including conference space, providing/eliminating advertisements, and allowing multiple devices. Other features, like public IP addresses are losing value as modern devices and VPNs function more easily in public access networks.

Tiered Bandwidth

Far and away the most significant trend is tiering bandwidth, where guests enjoy complimentary Internet that includes limited bandwidth, and have an option to upgrade their service to a higher bandwidth plan. Boutique hotels like Joie de Vivre, Kimpton and others who pioneered free Internet in the early 2000s have implemented a for-charge premium Internet service. Recently the major brands have been piloting tiered bandwidth at select properties and several are rolling out tiered bandwidth as part of their brand standards. Even HotelChatter, a huge proponent of free Wi-Fi, deemed this a fair practice in its 2012 Wi-Fi report as a way to satisfy everyone, providing guests the free Wi-Fi they want and hotels a revenue stream they need. A variant of bandwidth control that is beginning to emerge is limiting basic Internet based on total data sent/received. This mirrors the trend among wireless carriers who have begun charging different prices based on total gigabytes transferred per month.

Hotels considering a tiered bandwidth offering need to set their expectations properly. When basic Wi-Fi is free, premium higher bandwidth service probably will produce only 10%-20% of the revenue that would be generated in a full charge situation. So, hotels switching from full-charge to tiered bandwidth with free basic access should plan for a significantly revenue decrease. On the other hand, for a hotel that had previously offered free Internet to everyone, migrating to tiered bandwidth could represent a nice new revenue stream that could significantly, and perhaps even completely, offset overall Wi-Fi costs.

Tiered bandwidth can be tricky, and striking the balance between what's acceptable as a basic service and what is required to avoid network overload. Hotels should work closely with their network provider on how best to structure the service, and if the provider cannot provide guidance or implement these solutions, consider finding a new provider.

Stay tuned for the next installment of this series, where we will discuss other ways hotels can generate revenue through meeting rooms and advertising!