Not that the hotels are in this for the money: Guests typically pay just $10 a day for high-speed access. Hotels insist that the primary motivation in wiring rooms is to attract and retain business travelers, not to produce incremental revenue. But hotels still have to rationalize the cost. Depending on the age and architecture of the building, retrofitting for broadband can run as high as $850 per room. It's cheaper to build it in from scratch. Wingate equipped all of its hotels with high-speed cable and then spent $100 to $170 per room on additional equipment to offer broadband service.
One way around these costs is to have a service provider do the wiring for you. Some early broadband suppliers - startups like Marriott-backed STSN and CAIS Internet - offered to wire hotels for free. In return, they'd keep most of the fees charged to guests by the hotels. That led to a land grab as startups competed to wire as many rooms as possible. That arrangement meant chains like Wyndham didn't have to invest much (if anything) to add the service.
But as venture capital evaporated, the install-it-for-free model became less and less viable. Service providers began charging for installation and either taking a smaller cut of the guest fees or charging hotels a monthly fee. Not surprisingly, orders fell. "If for the last two years you're getting something for free, and now they say it's not, you're going to say, 'Let me think,'" says Mark Allen, director of multidwelling units markets at broadband provider Tut Systems. A slowdown in sales of equipment to hotel service providers contributed to a 44 percent drop in Tut's fourth-quarter revenues.
Some broadband providers simply checked out of the hotel business altogether. CAIS Internet, which wired Hilton's rooms, sold part of its business to Cisco Systems. OnCommand, used at the W Hotel in San Francisco, is no longer accepting orders for high-speed Internet access and is concentrating on more-lucrative and established businesses such as pay-per-view movies and online gaming. MobileStar Network has abandoned hotel rooms to focus on retrofitting hotel lobbies, airports and even Starbucks coffee shops for wireless Net access.
Perhaps no company has retrenched more than Darwin Networks. Based in Louisville, Ky., Darwin filed for Chapter 11 bankruptcy in January after laying off more than 300 employees. Last fall, the company, which landed $120 million in venture capital in just over a year, announced it would get out of the hospitality industry and instead wire apartment buildings and commercial property. Why? The company figures it gets about $400 per month from commercial customers and $40 a month from an apartment tenant, compared with trying to make money from hotel customers at $9.95 a shot, says Russ Maney, Darwin's senior VP of marketing and customer service. "We just saw a quicker return on investment" from apartments and offices.
As hotels pick up at least part of the bill for installation and start receiving more revenues, customer awareness - and usage - should rise. "There's going to be a lot more interest on the part of hotels to market the service," says Amy Helland, a research analyst with Cahners In-Stat, "because they're going to be taking some of the risk."
