Microsoft's municipal Wi-Fi push

Olga Kharif
21 Nov 2006

Microsoft is gearing up to conquer the wireless fidelity (Wi-Fi) market one city at a time.
The software giant's recent deal to provide content and services for a wireless network under construction in Portland, Ore., will intensify the battle between Google, Yahoo!
, and Microsoft's MSN for online traffic and advertising revenue.

The move by Microsoft to partner with municipal Wi-Fi operator MetroFi is more than just a me-too gesture following Google's (


) decision to build out, together with partner EarthLink (


), a Wi-Fi network in San Francisco. Content providers who capture the growing municipal Wi-Fi market will be in a better position to enjoy higher traffic to their sites and greater customer loyalty"”and, as a result, grab a greater share of online advertising dollars, expected to reach $16 billion in the U.S. this year, according to consultancy eMarketer. 'It's a battle for eyeballs,' says Matt Rosoff, an analyst with consultancy Directions on Microsoft.

Today, most people access the Web via cable or digital subscriber lines (DSL). But in a few years, municipal Wi-Fi (muni Wi-Fi), could emerge as the primary way for many urbanites to access the Internet, believes Craig Mathias, founder of wireless consultancy Farpoint Group. 'I think muni Wi-Fi will become enormous,' he predicts. While only 68 cities in the US have citywide Wi-Fi networks in operation today, 132 more are planning deployments, according to market researcher

Web Traffic Thins

At the same time, the number of consumer devices with Wi-Fi capability is multiplying (see, 11/7/06, 'Sony's Mylo: Mighty Weak'). As consumers move to muni Wi-Fi access, there's an opportunity for disrupting the online status quo: Users might be persuaded to switch not only their broadband providers but also their current home pages and Web search preferences.

While Google and Microsoft have announced their muni Wi-Fi intentions, analysts believe Yahoo won't be far behind. Yahoo could jump into the muni Wi-Fi market by pairing up with AT&T (T). Yahoo already markets a home DSL service with AT&T. Yahoo wouldn't discuss its plans, but a spokesman says the company is 'taking a close look at the opportunities in front of us and evaluating those which make the most sense for our business and our partners,' according to a statement from Yahoo.

As this battle plays out, Microsoft has the most to lose. For the past year, traffic to its search and other sites has been falling, despite this year's launch of numerous Microsoft Live services. In March, for example, MSN Search grabbed 13.09% of all search traffic. But that figure dropped to 10.55% in October, according to market researcher Hitwise. Rival Google is picking up market share, which has reached 62.36% recently, while No. 2 Yahoo, has held steady at a 22.3% share.

Popularizing Zune

For Microsoft, the dip in traffic has translated into a drop in ad revenue. The company's online services division's sales were down 4.4% in the first fiscal quarter ended in September, compared with a year ago. The division, in the midst of executive and strategy changes, lost $136 million in the quarter, compared with a $68 million profit in the year-ago period.

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