Free wifi and margins - why I pay more for orange juice than airtime

Monday’s posting about the offline wifi directory seems to have started me off on a bit of a theme. For various reasons, I was over in Leeds for most of the day today, and needed to get web and email access several times. Depending on where I am and what I’m doing, this could involve a GPRS connection from a PDA, or wifi using my Powerbook. The first can happen pretty much anywhere, while the second needs (obviously!) a hotspot.

The last few times I’ve been in Leeds I’ve ended up using a T-Mobile hotspot in Starbucks, mainly because it’s the least-gouging of the prices that are available. This morning was no exception, so I duly laid out £6 for an hour, drank one grande Americano and moved on.

Then later in the day - by pure chance - I happened to be in a large chain hotel on the other side of the city needing web access. I was about to grit my teeth and pay another £5 or so when to my utter astonishment I discovered that the hotspot was open - free - no payment required.

The net effect of this was that I stayed in their cafe for a little over two and a half hours, drank two coffees, and an orange juice and ate a sandwich. It cost me far more than it would have done in paid wifi time, but the hotel was way ahead in the deal - they’d just sold a number of high-margin items from their catering outlet at a time when it would normally be virtually empty. If I’d been charged for the wifi time they would have been lucky to sell me more than a coffee, and they might have made a few pennies on the wifi charge if they had a particularly good deal with the hotspot provider.

Which got me wondering. The marginal cost of my using the wifi for that length of time was precisely zero - the bandwidth would have been there regardless of whether I was using it or not. The cost of the hotspot hardware is virtually negligible in the grand scheme of things, so all-in-all it cost absolutely nothing for me to use the service. Yet the hotel will have made a substantial margin on what I ate and drank, and will make more the next time I head back there with others in tow. So why is free wifi so unusual in the UK? Why are hotels, cafes and the like not realising that they stand to make far more by giving away the service than they could ever make by charging? After all, supermarket retailers have been using loss-leaders like petrol to pull in additional marginal gains for years, so why is the hospitality trade so different in their outlook?

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