After the GOWEX-related events from 2 to 6 July, I wish, as author of this article, to clarify that it reflects this company’s situation as publically known at the time of writing (May 2014). Rather than deleting it, I consider it best to keep it as a reflection of what GOWEX seemed to be at that moment.
I had the chance of meeting up with some GOWEX executives, who explained to me their revenue-generating, business-boosting methods, their new ideas, hopes and projects for the future. I’m convinced that they themselves, at least in part, were more sinned against than sinning.
Personally speaking, I regret the fact that what seemed to be such a bright and promising project has ended up like this, especially due to the totally unfair knock-on damage it may cause to other technological projects and the image of Spanish firms in general.
One of the Spanish technology firms generating most news on digital forums is GOWEX. Originally set up in 1999 by Jenaro García (Iber Band Exchange), this Spanish firm has fleet-footedly adapted its strategy to suit changing circumstances and built up its business until becoming the worldwide free Wi-Fi benchmark.
By the end of 2013 over 80 cities throughout the world were running WiFI networks rolled out and operated by GOWEX. This map includes Madrid, Paris, New York, San Francisco, Dubai… and the company’s ambitious long-term plan is to fill in all the gaps on this map until covering the world’s 600 biggest cities.
In Madrid, now dubbed “hyperconnected”, there are WiFI connections in street kiosks, buses, public buildings, etc. The company has also reached agreements with several café and restaurant chains for their access points to become part of this network. They also have an agreement for rigging up the metro subway system.
The company, currently with a 300-strong staff, clocked up a 2013 turnover of nearly 200 million euros, two thirds of it abroad.
How to make money selling a free service
The crux of the matter is finding sustainably money-making business models from the roll-out and maintenance of networks that are free for end users.
The most obvious income source is the service-installment payment made by the town or city council in question. For city governors a free WiFI network boosts their image and kudos among a great part of their governees. The improvement in connectivity also has a knock-on effect for future projects. It is much simpler and cheaper to set up connections with any meter-reading system, remote control or fleet tracking system.
Another source of income that GOWEX is tapping into is agreements with cellular operators for downloading part of their data traffic. This is especially important in crowded sites where investments in congestion-reducing cellular data connections may not be profitable (a WiFI hotspot is much cheaper than the station of a cellular operator).
Income is also generated from users who prefer to upgrade their data connection by paying a daily, monthly or annual fee. To cater for this business the free service is offered with speed restrictions, currently capped at 512 kbs.
Another business outlet GOWEX is harnessing is the sending of geolocated publicity in free hotspots. Their business model combines high user segmentation with real-time knowledge of their position, enabling them to send publicity or carry out promotions with a very high probability of success. To enhance this model the so-called “Social Wifi” was launched in New York in late 2013 under the new We2 brand.
Pros and Cons
The main advantage of networks of this type is ease of use. The network is enabled for the whole range of handhelds and mobile devices (cell phones, laptops, tablets, e-books…) and for all users (national and foreign). In some cases, albeit with certain limitations, it is even possible to use it as a home-area network.
As for the downside, access is sometimes not completely transparent. The requirement of entering a login/password is a nuisance and in some cases a serious problem. The service might also sometimes crash due to low signal power or interference. Speeds are restricted and even in a paid service it is difficult to reach 3G speeds, not to speak of LTE. Neither is there mobility in a real sense; it would not be possible to maintain a connection while walking or from a moving car.
In my opinion, in any comparison with a cellular data connection, 3G/4G will often turn out to be more convenient and almost always quicker. In favor of WiFI is the fact that the prices charged by most cellular operators are tied in with a maximum monthly download.
One of the likeliest future threats is without any doubt the development of LTE networks and their market prices. A city with complete cellular data cover and an unlimited, low-cost, flat-rate service (especially in today’s convergent market) would leave little leeway for the premium pricing strategy.
The end of roaming costs in Europe could also eat into part of the current income.
The good news for GOWEX is that these are only partial threats because there would still seem to be ample leeway for handhelds with an exclusive WiFi connection. There will always be cities with holes in their coverage, visitors from outside Europe, etc. Furthermore their “social WiFI” model could create a lucrative source of additional growth if it catches on among users.
The sheer diversity of income sources and above all the international dimension make the model more resistant to market changes and hence more robust looking ahead. Moreover, the great number of cities where it has already been rolled out and the rapid growth rate cut down any copycat’s chances of success.
GOWEX has without any doubt found an attractive and sustainable business model with a healthy image and bright future. Their share price trend suggests that markets share this optimistic view.
Links of Interest
- History of GOWEX
- GOWEX’s 2013 WIFI report
- Metro de Madrid awards Gowex the contract for setting up free WiFI
- Using GOWEX as a home area network
Author: Crescencio Lucas Herrea
Las opiniones vertidas por el autor son enteramente suyas y no siempre representan la opinión de GMV
The author’s views are entirely his own and may not reflect the views of GMV