1.2 Companies on the Move:

Please email:  start-ups@netsuds.com to report (1) the formation of a new start-up, (2) momentum change at an existing start-up, (3) addition of key hires, or (4) a funding event at a start-up.  We do not accept press release changes from third parties.  We must hear directly from an executive at the company which is 'on the move'.

You can also try our new online calendar by clicking here for NetSuds and here for MedicalSuds.

4.1 NetSuds on Tour

NetSuds loves on-site tours!  Email me if you want to show off your company.  I can be reached at matt@netsuds.com. No tours this month.

4.2  Email Advertising

The Business Journal reported that their daily email news reaches 5000 Twin Cities executives.  The MHTA claims a little over 2000 people on their email list.  Not bad but still a great deal less than the NetSuds and MedicalSuds email lists which reach 7200+ (yes, the lists are growing).  The NetSuds email lists are double-opt-in and concentrated on professionals in the communications, IT and Internet markets.  The MedicalSuds email lists are double-opt-in and concentrated on professionals in the medtech, biotech and life sciences markets.  So, rather than spend your advertising dollars on any other email lists in the Twin Cities, consider the NetSuds and MedicalSuds lists.  Contact matt@netsuds.com or 612.279.2154.  For current ad rates, visit www.netsuds.com/adrates.htm.

7.0  Innovative Marketers Target Unwired Customers

by NetSudser Mike Ellsworth, www.stratvantage.com, mellsworth@stratvantage.com

“The future is already here, it’s just not evenly distributed yet.” - William Gibson, science fiction writer

Now that 75 percent of the US population has access to the Internet, there is increasing interest among marketers in a variety of new technologies that they can use to reach customers. In addition to the more established tools such as email, online newsletters, and Web sites are some newer ones, such as Short Messaging Service (instant messaging for cell phones), online affinity clubs (like various musicians’ fan clubs), and Web Instant Messaging (such as AOL Instant Messenger and marketing tools like ActiveBuddy).

These direct marketing techniques have sprung up after the technologies in question have had time to achieve large-scale acceptance and use, and for marketers to discover how to use them.

For example, Instant Messaging (IM) has been around on the Internet since the debut of ICQ in December 1996 and AOL’s subsequent release of the AOL Instant Messenger (AIM) beta shortly thereafter. Similarly, Short Messaging Service (SMS) really got its start with the introduction of Sprint’s PCS cell phone service, also in 1996. Yet it has only been in the last couple of years that marketers have started to use these media to reach prospects.

Today, there’s a new medium that is growing faster than either of these technologies did: wireless networking.  

Known either by the geeky moniker 802.11 or the more marketing-friendly Wi-Fi (for Wireless Fidelity, a call back to the old High Fidelity audio concept), Wireless Local Area Network (WLAN) technologies experienced 27 percent growth last year. This rapid growth hasn’t escaped the notice of some marketers – Starbucks and Marriott Hotels are two examples – but the real question is, will it take five to seven years before direct marketers embrace this new medium?

A Few Geeky Details

Before we go any further, I’ve got to get a little geeky on you. Bear with me, though, as there are some important distinctions between WLAN technologies. 

First off, there are lots of wireless LAN standards out there. All involve using unlicensed radio frequencies to transport data over relatively short distances – 300 yards or so. Unlike cell phones, which operate over radio frequencies licensed and paid for by cell phone network companies, WLANs must deal with lots of other devices that might interfere with their signals, including your microwave oven. They do this using a technique called spread spectrum, which allows the radio transmitter to skip around various frequencies to find clear channels. Incidentally, this technique was invented and patented by Hollywood actress Hedy Lamarr in 1942; I kid you not. 

Currently, the most popular WLAN technology is 802.11b, which lets computers network at 11Mbps (megabits per second), and which is a little bit faster than your wired network if your office has an older LAN. But there are a host of 802.11 variants in development, including 802.11a and 802.11g, which reach speeds of 54Mbps. No one knows which variant will be the eventual winner, and that complicates things for WLAN equipment and service providers.

The big problem with 802.11b is security. A patient and persistent cracker (someone who breaks into networks) can discover the secret key used to encrypt 802.11b WLAN traffic in about a day. That assumes the network owner has even turned on encryption, and a lot don’t. Last May, retailer Best Buy had to temporarily shut down its wireless network after a security analyst in a parking lot intercepted data, including credit-card numbers, from the company's wireless cash registers. Best Buy hadn’t turned on the encryption, known as Wireless Equivalent Privacy (WEP), on its mobile cash registers. I recently got on to the baggage handlers’ WLAN at O’Hare airport with no problem at all while sitting at the gate. Simply turning on encryption would have prevented that. 

The WLAN industry is promising better security, but there are many WLANs that won’t ever use it. That’s because they are provided by marketers, like Starbucks, who offer access to their customers for a price and thus want access to be as hassle-free as possible. Cell phone network provider T-Mobile has set up wireless hot spots in 2,000 Starbucks cafes and is spending $100 million to build a nationwide Wi-Fi network. They’re also doing airport lounges and have announced they’ll next put hotspots in the cafes of Borders Books and Music stores.

T-Mobile’s motive is simple: They want to charge for WLAN access, although they’ve recently had to reduce their Starbucks prices. Starbucks’ motives, on the other hand, are a little more complex, and possibly problematic. Starbucks shares in the money they charge their customers for WLAN access to an Internet connection. But they also use WLAN access as a draw, hoping customers with laptops and wireless cards will be more likely to plop down in their cafes rather than the competition’s.

This seems smart, except for one thing: It doesn’t cost that much to install WLAN access. For example, the city of Long Beach, California, recently launched free Wi-Fi access in its restaurant district. They can do this because the city's total yearly operating cost is a measly $4,000. HereUAre, which intends to locate Wi-Fi access sites in apartment buildings and charge residents $29.95 per month, says it costs them an average of $7 per customer to set up.

Indeed, local Minneapolis Starbucks competitor, Dunn Bros., has put access points in most of its cafes, and they’re free. There goes Starbucks’ marketing edge! Unless I’m addicted to Starbucks’ Colombia Nariño Supremo, where am I going to go to meet business associates? Starbucks, where wireless access costs $30 a month, or Dunn Bros., where the coffee is less expensive, just as tasty, and the access is free?

I think Starbucks just got outmarketed. 

What It Means for Marketers

So why should you care about this geeky revolution? 

Well, in the next few years, lots of your customers will be unwired. “Our estimates show that [the market] could grow to 30 million laptops equipped with Wi-Fi capability in three years,” said Intel Executive Vice President and Intel Capital president Les Vadasz. “It will fundamentally change the way people use technology and enable high-speed Internet access anytime, anywhere for business and consumer use.”

Nowadays, most new laptops are coming equipped with Wi-Fi cards. And the number of places these laptops can connect is burgeoning. Research firm In-Stat/MDR predicts the marketplace will grow from 2,000 locations in 2001 to 42,000 sites worldwide by 2006. 

There’s plenty of room for growth. So far, according to Sky Dayton, founder of Boingo, a WLAN access provider, only about 3,000 of an estimated two million potential Wi-Fi sites at commercial sites like stores, gasoline stations and restaurants have been installed. More than 2 million mobile surfers in North America already use Wi-Fi, and research Gartner Group expects the number to double by next year. Dennis Eaton, chairman of the industry body Wi-Fi Alliance, says the current $2 billion Wi-Fi industry should expand at a compounded growth rate of 30 percent to nearly a $6 billion industry, putting it on par with household name brands like Budweiser.

Think about that. There’s a brand franchise that is growing so fast it will equal that of one of the most advertised and heavily marketed brands on the planet in a few years, and you’ve probably barely heard of it. 

The real question is: Are you going to wait five to seven years to start figuring out how to use this new medium?

There are plenty of folks who aren’t waiting, like WorkingWild, who with strategic partner Toshiba Computer Systems Group will install Toshiba wireless access points in 350 Circle K stores owned by ConocoPhillips in Phoenix and Tucson by early this year. Their plan is to  outfit 2,100 Circle K stores and more than 15,000 Phillips 66, Union 76, Conoco and Mobil convenience stores nationwide. “In three years, people will expect that their convenience store will be a hot spot for wireless access,” Richard Oneslager, chairman of the National Association of Convenience Stores New Business Opportunities Committee.

But there’s an essential dichotomy brewing in the WLAN market: subscriber/subsidized access vs. free access.

It will be difficult to defend high margin price points – such as the $2.95 for 15 minutes, plus $.25 for each additional minute Marriott is planning on charging – when your competitors, or community-based amateurs, are offering it for free. It’s likely that WLAN-based Internet access will quickly cease to be a novelty, especially with the Wireless Metropolitan Area Network (WirelessMAN) movement aiming to blanket every city with free, amateur-run Wi-Fi hotspots. Contrast this freebie movement with the Cometa joint effort IBM, AT&T and Intel announced recently. Cometa foresees 20,000 hotspots in the U.S. by 2004 and aims to place a commercial Wi-Fi hotspot within five minutes’ reach of every wireless user in the nation.

The new applications for this always-present technology are still being written, and many won’t become clear until the market reaches critical mass. It’s a safe bet that WLAN technology will extend the effectiveness of email and IM marketing. And the technology is likely to further enable location-based services that involve couponing, proximity-based special offers, and sponsored navigational/search services. 

What’s this all mean for marketers? More ways to keep in touch with your customers. The beginning of the always-connected society. Big rewards for marketers who figure out how to leverage these qualities in service of their brands. And potential disappointments for some – like Starbucks? – who jump on the trend before grasping it.

But there’s one thing for sure: This trend’s not going to take five to seven years to take off.

9.0  Guest Writers for This Report

I have opened up the Monthly NetSuds Report to guest writers. If you have a passion for a topic, and you can write (at least no worse than me), send an email to me matt@netsuds.com.  You can even send copies of your work.  It needs to be on "com and .com" topics and can include entrepreneur/investor activities.  Good information from our    service providers and vendors is also welcome so long as it is not a "commercial" for any one company or individual.

We will consider both sponsored and unsponsored columnists and guest writers.

If you are aware of others who would like to receive the NetSuds Report, ask them to visit http://www.netsuds.net/mail.htm to subscribe or unsubscribe.

Please send your comments and feedback regarding this issue of the NetSuds Report to matt@netsuds.com.

Matt Noah

980 Lake Susan Hills Drive
Chanhassen, MN  55317

612.279.2154
fax:  425.795.2019
matt@netsuds.com

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