Posted in Technology

Business models: why WiMAX might be like Chipknip (and Chipper)

I was thinking about business models today because my company, Muniwireless is releasing a study next week about the business models behind citywide Wi-Fi networks. Wi-Fi uses unlicensed spectrum and has the advantage of being in every laptop and increasingly more mobile phones. Wi-Fi chips are inexpensive and people keep squeezing more out fo the technology every year (higher throughput, better security, longer reach). What problem does Wi-Fi solve? It allows people to access the Internet everywhere and get broadband service without being tied down to a desk. Very useful for iPhone users who don’t want to rely on AT&T’s slow EDGE network. Citywide Wi-Fi networks allow municipalities to cut dramatically their telecommunications costs and enable workers to be more efficient. They can also deliver services in a cheaper way (wireless automated meter reading systems).

Now on to the WiMAX – ChipKnip discussion. WiMAX is supposed to be solving the problem of how to get wireless broadband everywhere. It’s supposed to be faster than Wi-Fi, have a longer reach, cover larger areas, using fewer wireless base stations. The problem is, along the way, WiMAX became the carrier’s version of Wi-Fi: it uses licensed spectrum and proprietary technology. That means there can be only one or two WiMAX providers in a particular region. That also means a tiny market for the WiMAX base stations (leading to very high prices). Smells like cellular service.

Who is asking for this? What problem does it solve? If it were unlicensed and using non-proprietary technology, I’d be very excited.

What is ChipKnip and why may WiMAX end up like it?

ChipKnip is a debit card paying method that no one in the Netherlands asked for or use. We already had debit (or PIN) cards before ChipKnip but someone up there in the ivory tower of banking decided that people really wanted YET another card, this time for making small payments (3 EUR here, 5 EUR there). In reality people just use cash or their PIN cards for micropayments.

But the ChipKnip folks spent huge amounts of money promoting ChipKnip, installing special readers and ChipKnip machines so people could top up their ChipKnip cards. Problem: few shops took ChipKnip. Also people did not want another card so they never topped anything up or paid using the ChipKnip card.

They were not asking for this!

As if things couldn’t get sillier, along came the Chipper, the competitor to ChipKnip. The municipality of Amsterdam installed ChipKnip (or is it Chipper?) slots in the parking machines so people could pay for parking instead of using coins. I have no idea how many people use this method of payment but that’s no longer an issue because today, you can pay with your mobile phone.

My ChipKnip and Chipper cards have been lying in a box since the day they arrived. I never used them. So the banks got smarter and now build in the chip into the PIN (debit) card. Now you can use one card to “chip” and make debit payments. I don’t see the difference. I have never “chipped”. I just pay whatever amount it is using the debit card. Such a hassle to top up the chip part of the card.

WiMAX = ChipKnip?

Like ChipKnip and Chipper, no one is asking for licensed, expensive proprietary wireless broadband service. There’s already Wi-Fi. It’s in all laptops, the iPhone and increasingly in mobile phones like Nokia’s. Soon the Blackberry will have Wi-Fi, too. We are all so used to Wi-Fi which is cheap, unlicensed and open to all providers (more competition, lower prices). And, when cities set up their muni Wi-Fi networks, this way of connecting wirelessly to the Internet and to one another, will be available everywhere. You can actually find a lot of Wi-Fi already in large cities, free at that, in many cafes.

WiMAX , like ChipKnip and Chipper, is a solution foisted on us by the big guys (operators). No one was waiting for it, expecting it or demanding it. WiMAX is already suffering from the same chicken-and-egg problem that bedeviled the ChipKnip. The WiMAX operators will have to spend a lot of money deploying networks in most large cities, but few will sign up along the way if the only place to get it is in another city. Moreover, very few people will throw away their iPhone, laptop or Nokia Wi-Fi enabled device to replace it with another device that’s got WiMAX unless the WiMAX networks are really everywhere and the price-performance ratio is attractive compared to Wi-Fi. You won’t see big IT departments throwing away nearly new PCs just so they can replace them with PCs that have WiMAX.

Indeed, Sprint, a US cellular operator with a WiMAX license, is already rethinking its WiMAX strategy because shareholders are complaining it is spending too much money on unproven (and I’d say, unwanted) technology. It’s spending lots of money rolling out the tech equivalent of the ChipKnip and Chipper.

Thinking of whether there’s a real pressing need for your product is absolutely essenting for any entrepreneur or large enterprise, especially when people are used to a product that does the job already, is non-proprietary and cheap. The top down big institution way of thinking that produced the ChipKnip, is now busy rolling out WiMAX. Its chances of success are small.

UPDATE (Feb 2011): WiMAX is basically dead. Clearwire, the US WiMAX operator, gave up its retail operations. It will sell only wholesale. Nearly every European WiMAX operator has gone out of business. The Russian WiMAX operator, Yota, has switched its network to LTE.

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Author:

Author of "The Secret of Angat", a novel set in the Philippines during World War II. Founder, MuniWireless.com; Founder (Mapplr.com - travel) and Shopplr.com (beauty, style).

4 thoughts on “Business models: why WiMAX might be like Chipknip (and Chipper)

  1. I still remember the sad tone of voice of the Internet specialist at my tiny local phone company, as she said, “You’ll never have ADSL in your town.” That’s why I’m hoping that WiMAX catches on, somehow. WiFi doesn’t work on the wide open spaces.

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  2. Interesting. And I think you’re right. The most important question ‘producers’ of any sort seem to forget is a question that should be posed from the consumers perspective: “what’s in it for me?” If you are not able top answer that question your product will not be successful.
    And I agree with you that with the chipknip and chipper they’ve failed to answer that question (by the way: have you seen those little stickers lately in almost every supermarket that state: “it’s okay to use PIN for small payments”).
    Now, in Michael’s case, WiMAX might indeed have a benefit for him. But I wonder if that benefit goes for all of us. I for one, have no problems what so ever with the WiFi in my neighborhood. So there’s really nothing in it for me. Indeed it might even be more of a hassle than a benefit.

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  3. I believe that the Ivory tower isnt so far off at times. However getting that information to the “people” users at times is the problem.
    For example the case you stated with ChipKnip I can see right away why it would actually be useful and needed. Perhaps in Netherlands they were to far ahead of the need.
    The problem it solve is quite obvious here in the US to anyone who was taken advantage of by theives clearing out their debit acocunt. With a Debit card every time you use it your risking any money you have in your account. People here have started creating one use Debit cards, or opening two accounts and only moving over money needed.
    Well how about credit cards? In the past they had a transaction fee with a minimal amount and also charged 3% to the seller.
    Third was how to make payments in privacy?
    So the chipknip would bascially be able to replace cash in your wallet. It good for the vendors as they don’t pay 3%, machines can be less complicated since they do not have the expensive mechanics to take change and money. They would not be targets for theft etc.
    The end user could have privacy protected, and protection from their bank account from being drained. (http://www.savemart.com/pdfs/SaveMartFAQ.pdf)
    I would say the only reason we do not have such a great thing as Chipknic here in the US is that the large banks and credit card companies probably killed it long ago or just haven’t found a way to make money on it.
    So how does this relate to what you said about WiMax.
    WiMAX is not like chipknip. It is not proprietary in fact it is the opposite, while CDMA is a proprietary standard, WiMAX is open. The only limiting factor is the frequency, and yes that is limited. I find that WiMAX actually is opposite to what you are saying, its competition is typically proprietary standards (CDMA, EDGE). The reason why carriers are going to WiMAX is to reduce the cost from doing a proprietary setup.

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  4. I believe that the Ivory tower is not so far off at times. However getting that information to the “people” (users) at times is the problem.

    For example the case you stated with ChipKnip I can see right away why it would actually be useful and needed. Perhaps in Netherlands they were too far ahead of the need.

    The problem it solves is quite obvious here in the US to anyone who was taken advantage of by thieves clearing out their debit account. With a Debit card every time you use it your risking any money you have in your account. People here have started creating “one time use” Debit cards, or opening two accounts and only moving over money needed to their daily use debit card.

    Well how about credit cards? In the past they had a transaction fee with a minimal amount and also charged 3% to the seller. Fine for the buyer but 3% out of the seller pocket, think a $4000 worth of transactions would pay for a $100 chippak machine to be installed.

    Another advantage would be making private payments.

    So the chipknip would basically be able to replace cash in your wallet. It good for the vendors as they don’t pay 3%, machines can be less complicated since they do not have the expensive mechanics to take change and money. They would not be targets for theft etc.

    The end user could have privacy protected, and protection from their bank account from being drained. (http://www.pcworld.com/article/id,131701-page,1/article.html)

    I would say the only reason we do not have such a great thing as Chipknic here in the US is that the large banks and credit card companies probably killed it long ago or just haven’t found a way to make money on it.

    So how does this relate to what you said about WiMax.

    WiMAX is not like chipkak. It is not propriety in fact it is the opposite, while CDMA is a proprietary standard, WiMAX is open. The only limiting factor is the frequency, and yes that is limited. I find that WiMAX actually is opposite to what you are saying, it’s competition is typically Proprietary standards (CDMA2000, UTM etc). The reason why carriers are going to WiMAX is acctually to reduce the cost from doing a proprietary setup. In other words they don’t want to be pay Qualcomm tons of money and spending $15 billion on proprietary equipment like they did before.

    The issue I believe you are trying to address is that the Sprint and the other “telecoms” will probably not allow their devices to work on any frequency range but theirs. That is the real issue. As WiMAX can be used in unlicensed spectrum also (just at lower power), they “Sprint etc” will resort to locking the device their frequency which would be similar to the locked hand sets we currently have.

    While I do not exactly agree with this, I do agree that the current CDMA , EDGE etc standards should be replaced with a more open format that would be good for licensed and unlicensed frequencies. This actually a win-win situation.

    No regard to WiFi being better, due to the current installed base. Anyone who has designed Wifi networks realizes the huge amount of baggage that comes with them. WiMAX allows us to drop this and start with a fresh slate and build systems that take better advantage of the very limited radio spectrum that we have.

    So the solution is to use WiMAX and Wifi together until the next geration of laptops and phones have Wimax built in. You may say well how about if we improve Wifi and it’s standards, well then you would eventually get something similar to WiMAX anyway. Keep in mind this is the standard setup by the same group IEEE that made the WiFi standard in the first place. So while WiFi has it’s place unless the standard is extended to include WiMAX benifts , it’s best we drop it sooner than later.

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