Microsoft's Municipal Wi-Fi Push

With a foothold in Portland, Ore., the software behemoth is looking to citywide Wi-Fi networks as major future sources of Web traffic and ad revenue

by Olga Kharif

Microsoft (MSFT) 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! (YHOO), 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 (GOOG) decision to build out, together with partner EarthLink (ELNK), 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 U.S. have citywide Wi-Fi networks in operation today, 132 more are planning deployments, according to market researcher MuniWireless.com.

Web Traffic Thins

At the same time, the number of consumer devices with Wi-Fi capability is multiplying (see BusinessWeek.com, 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.