Starbucks helps commoditize mobile Internet

One of the topics that I have to cover with my MBA tech strategy students is about related diversification, vertical integration and cross-subsidization. Thirty years ago, SV startups made money selling a product, but clearly over the past decade synergies and economies of scope have brought a major change to all aspects of SV life: exit strategies, monetization opportunities, and (alas) the prevalence of competitors.

I made my post this morning about the challenges of getting 3G mobile Internet in competition with wired Internet, and then ran off to a few meetings with two friends who are running mobile startups. Since the majority of the party are coffee addicts, when the tiny sushi-ya wanted their table back we ended up at the Starbucks down the road. (Since I don’t drink coffee, I only end up at Starbucks to do a meeting.)

One thing led to another, and my compatriots explained to me what the Starbucks free Wi-Fi (announced in February) really means. Sure enough, I went to the website, which explains:

Complimentary Wi-Fi for Starbucks customers When you register your Starbucks Card and use it at least once a month, you'll receive two consecutive hours a day of complimentary Wi-Fi, courtesy of AT&T.

This is the ideal division of labor for our household. My wife drinks one or two $3 cups of coffee a month that she was going to drink anyway, and I get free Wi-Fi without having to go to a library (as I am right now).

The network connectivity is provided by SBC (which then provides free access to SBC DSL customers). SBC replaced T-Mobile, which this week sued the-company-that-pretends-to-be-AT&T for advertising the affinity card deal (begun June 3) before T-Mobile is completely gone from Starbucks (but they settled the suit yesterday).

So not only do the 3G carriers have to compete with people’s home, work and school Internet, they also have to compete with free Wi-Fi at 6,800 US Starbucks locations — subsidized by sales of double-mocha nonfat lattes, coffee mugs, and music by Dylan Filsand has-been boomer stars (to pick two examples from today’s coffee shop branch). And, in at least one town, by companies subsidizing citywide Wi-Fi for its own purposes.

Add to that, the increasing number of midsize airports are providing free Wi-Fi. So far this year, I’ve seen it in San Diego, Las Vegas, Denver and now San Jose.

With competitors (or substitutes) like these, no wonder municipal Wi-Fi and WiMax never stood a chance. Among the wreckage is MetroFi, once the Bay Area’s great Wi-Fi hope that is a week a way from going dark.