Starbucks Unwired

By Anita Hamilton

On a recent Sunday afternoon, the Starbucks coffee shop at Piper's Alley in Chicago's Old Town was packed with twentysomethings talking on cell phones, poring over books and newspapers or just dozing off in the store's soft, overstuffed armchairs. At a tiny table next to the window, Trevor Ulbrick, a law student at Northwestern University, tapped away on his Apple PowerBook while listening to a CD through big, cushy headphones that practically enveloped his head.

Ulbrick, 28, wasn't there for the frothy $3 lattes or even the shop's mellow atmosphere. He came for the high-speed wireless Internet access--and he's willing to pay $30 a month to get it. "I would not be here if they didn't have wireless," he says. "I don't like Starbucks coffee. Honestly, I don't like their pastries either--although I'll buy a cookie so I don't feel too unethical."

Penny-pinching students like Ulbrick aren't exactly what Starbucks had in mind when it partnered with T-Mobile last year to roll out wireless Internet access in its shops across the country. Now with more than 2,600 Starbucks stores equipped with wi-fi, the duo has created the largest public wi-fi network in the U.S. It is also among the first to test consumers' appetite for paid wireless access outside the home.

The plan was simple: lure droves of tech-savvy customers into the shop with wi-fi, then ply them with grande lattes, oversize Rice Krispies treats and other high-priced snacks. But while the wi-fi hot spots have added modestly to Starbucks' cachet, they have generated less buzz than a cup of decaf. And some Starbucks watchers doubt that they will add much of anything to the company's bottom line. "I don't think it is ever going to be a hugely profitable enterprise for Starbucks," says InStat/MDR analyst Mike Wolf. Pyramid, an analyst firm, predicts that the monthly wi-fi revenue per customer for all public hot spots around the globe will plummet from $30 today to just $3 in 2008.

Starbucks shrugs off such dire predictions. "Analysts love the doom and gloom," says Lovina McMurchy, director of Starbucks Interactive. "We believe there is money in wi-fi," she insists. This past summer Starbucks CEO Howard Schultz even pointed to wireless as a factor contributing to the company's $410 million in revenues in June 2003, a 27% increase compared with $323 million in June 2002. Neither Starbucks nor T-Mobile will say how many people are using the service or how much money the venture has actually made.

To see for ourselves, TIME sent reporters to four stores that the chain identified as being especially popular among wi-fi users. And while we found lots of people using notebook computers, few were online. For example, at the Astor Place store in New York City, there were more than 100 customers one Sunday night, including 15 with laptops--but only three said they were using Starbucks' wi-fi service.

So will wireless ever pay off for Star-bucks? It's hard to say. After all, who would have predicted that we would be queuing up every morning to hand over $3 for a cup of coffee? If Starbucks can manage that trick, perhaps it can make wi-fi profitable too. But one thing is almost certain: relying on cash-strapped students isn't likely to work. Trouble is, the much sought-after mobile professionals who can afford the wi-fi fee also prefer a more private space where they can conduct business and talk on a cell phone in peace.

But there is one group of road warriors for whom wireless works well: Starbucks' employees. Before wi-fi, the 600 regional managers--all of whom work with laptops--had to drive back to the office every day to file reports and order supplies for the six to 10 shops that each of them oversees. Now they can do all that during their store visits. The company says wi-fi has increased its managers' presence in stores as much as 25%, since they spend less time shuttling back and forth from the office.

And Starbucks is betting that what is good for its managers will be good for a lot of other mobile professionals. Suzie Gruber, 37, a user-interface consultant for a company that is developing applications for the construction industry, says she spends six hours a week at Starbucks. She's constantly on the road meeting with clients, and whenever she needs to go online she just drops into the nearest Starbucks anywhere between Los Angeles and San Francisco. "I'm a lot more efficient now," she says, since she can reply to e-mails during the day instead of waiting until she gets home.

As a rule, wi-fi users tend to spend more time in Starbucks--about 45 minutes per average customer. Bob Macala, 61, says he is at the Piper's Alley store every weekday from 8:30 a.m. until noon and then sometimes in the evenings as well. The retired English teacher is working on a novel and poring over his stock portfolio. He's even made some wi-fi friends, mostly other retirees who hang out at Starbucks and trade stocks online.

Those who use the service say they like it. "The connection is great," says Swapan Chakrabarty, 31, a graduate student and network administrator for a software firm, who goes to the Astor Place store about four times a week and stays two to three hours per visit. About the only complaints from wi-fi users are that some stores don't have enough electrical outlets.

The more serious threat to Starbucks' plan is the competition from free wi-fi--the crazy quilt of free wireless networks springing up in San Francisco, Seattle and other high-tech cities. Starbucks customers have been known to hop on a free Internet node and bypass the store's paid service entirely. "Why pay if you don't have to?" says Kevin Lawrence, 28, a software-industry entrepreneur, who spent hours typing on his laptop but hadn't bothered to buy anything during a recent visit to a Starbucks in Manhattan.

But Starbucks is not likely to give up without a fight. An atmosphere buzzing with information fits perfectly with the hip, highly caffeinated image it seeks to project. But unlike espresso you can smell or overstuffed chairs you can feel, wirelessness is imperceptible. Sometimes even the employees don't realize it's there. "What's that?" asked a barista in a Capitol Hill Starbucks in response to a TIME reporter's question about whether the store offered wi-fi. "I don't think so," he added. As it turns out, that particular Starbucks has been a wi-fi hot spot since the company rolled out the service in August 2002. --With reporting by Kristin Kloberdanz/Chicago, Laura A. Locke/Los Gatos and Eric Roston/Washington

With reporting by Kristin Kloberdanz/Chicago, Laura A. Locke/Los Gatos and Eric Roston/Washington