“Frustration,” says Sky Dayton, “is the mother of invention.” For Dayton, it also is the seed from which one fortune already has grown. Another may be on the way.
Back in 1994, Dayton’s frustration with the newly commercialized Internet led him to start EarthLink, which helped take the Web mainstream by cobbling together regional Internet service providers. Today, EarthLink has about $1 billion in annual revenue.
Dayton remains EarthLink’s chairman, but now at age 30, he’s out to turn another source of frustration into a business opportunity. This past December he founded Boingo Wireless, a company aimed at bringing wireless LAN technology to the mass market.
Boingo’s premise is straightforward: offer a national framework off which operators of locally based wireless LAN services can hang their services. Local operators get to be part of a national broadband wireless initiative without giving up their local scale. Their customers get to use the service when they travel outside their home market, which after all is what wireless is all about (the name “Boingo” is meant to convey the freedom to move from place to place).
Dayton is quick to draw some parallels between the origins of EarthLink and Boingo. “The similarities are that I wanted to use this cool new technology, and it was difficult,” he says. “Once I finally got connected, I realized the potential, and I saw that there was a way to make it easier.”
Dayton’s impatience with the status quo begs comparison with Apple Computer and its most famous founder, Steve Jobs. While Jobs set out to deliver an everyman’s computer, Dayton has focused on the Internet connection for that computer.
“So many people accept things the way they are,” says Bob Metcalfe, who invented Ethernet and founded 3Com before becoming a general partner at Polaris Venture Partners. “Sky wants them to be the way they can be. He’s a little like Jobs in that regard.”
Such a deal
Boingo seems to be in the right place at the right time: The price of wireless LAN modems is now under $100, cheap enough that many laptops now ship with them installed. At this week’s CTIA show, Boingo is running a special promotion, selling wireless LAN modems for $25. That’s less than the price of the cable needed to connect a laptop to a cell phone.
Service prices are relatively cheap: Boingo’s most expensive plan is $74.95 for a month’s worth of unlimited service — a bargain compared with next-gen cellular networks, which can’t muster even a tenth of the bandwidth delivered by wireless LAN (a.k.a. WiFi or 802.11) technology.
Like EarthLink, Boingo unites regional network operators under a single, national brand, almost as franchisees. Here’s how the operation works: Boingo sells service directly to subscribers and then pays its wireless LAN partners for each connection. Under its Pro Plan, for instance, Boingo charges subscribers $25 for 10 connections per month, or $2.50 per connection. “If we pay $1.25 [to the wireless LAN operator], we have a 50% gross margin,” Dayton says.
The hook for wireless LAN operators is that Boingo frees them from the overhead and hassle of billing, customer care and marketing. Boingo’s partners still have the right to market their services directly.
“In a way, Boingo is a competitor,” says Dan Lowden, VP of marketing at Wayport, one of Boingo’s first wireless LAN partners. “But if they can drive more people to our network, the better it is for us.”
Boingo’s big benefit is that it doesn’t have to shoulder the cost of building a network. Would-be wireless LAN provider MobileStar went bankrupt because it spent itself scarlet trying to build networks in as many places as possible.
Dayton recognized the folly of that approach years ago when he built EarthLink. “He made a key decision early on,” says Stewart Alsop, an EarthLink and Boingo board member and a general partner at New Enterprise Associates, an early investor in Boingo. “He obviously wasn’t going to be able to compete by building a network because there were plenty of people building networks, so instead he decided to buy it from other people. By being a customer of the network providers, he got them to compete with each other and reduce their costs to him.”
Dayton is taking the same tack at Boingo. If a Boingo customer enters an airport served by three wireless LAN providers, and they’re all Boingo partners, the software picks the service that offers least-cost routing, so the provider with rates most favorable to Boingo’s bottom line gets more traffic and revenue.
Dayton may be starting out with wireless LANs, but he expects to expand his service to next-generation cellular networks when they are ready. Sprint PCS is a Boingo investor, and last November, VoiceStream bought the assets of MobileStar, although it hasn’t said if or how it will integrate wireless LAN service into its service. The means to deliver that integration are already available: Nokia is among a handful of major vendors now offering systems that allow roaming between GSM networks and wireless LANs.
“A lot of carriers thought of WiFi and 3G as competitive,” Dayton says. “The reality is that they’re good at different things. Put them together, and you’ve got a killer network. Sprint realized that very early on.”
Linking wireless LANs and cellular networks should make Boingo’s service available in areas besides coffee shops, airports and hotels. That trend drives wireless LANs further up the curve of Metcalfe’s Law, which states that after a point, the benefit of linking computers outweighs the cost of doing so.
“WiFi is below critical mass, but it’s on the verge,” Metcalfe says. “By tying all of these spots together and lowering the complexity of wandering among them, critical mass will be achieved, and Boingo is likely to prosper.”