INNOBLOG

When people think of successful innovations they often picture technological innovations; conjuring up images of the latest gadget or the most-talked about website. These associations are by no means erroneous, innovation success often includes a component of technological improvement or application, but associating innovation success only with a technological edge doesnt complete the picture. The reality, one that firms often miss, is that successful innovators dont just develop an innovative technology, product or service, they develop an innovative business model that allows an idea (be it new or old) to flourish.

Few places is this reality more apparent than in the realm of municipal Wi-Fi.

Over 400 municipalities large and small across the United States have built, are building or are planning to build municipal Wi-Fi networks. Here's a Map. But many of these projects, including some high profile ones like San Francisco, have stalled recently as the same firms that only a couple of years ago were falling all over themselves to bid and win municipal Wi-Fi contracts are discovering that their business models are not sustainable.

Earthlink and other companies who bid on early municipal Wi-Fi projects frequently agreed to build and maintain the networks at their own expense. They also made other concessions; agreeing to share revenue from ads and subscriptions, to provide free access to city workers and to pay for space on city light poles where access points would be mounted. These companies hoped to create profitable networks by relying on the public to sign up, replacing their current internet subscriptions (whether dial-up, DSL or Cable) with municipal Wi-Fi offerings.

But city residents havent subscribed in the numbers that were anticipated. Glenn Fleishman, an editor at wifinetnews.com told Business Week that only 1-2% of populations have signed up, much lower than the 15-30% subscription rates expected. The reluctance of the public to adopt municipal Wi-Fi is forcing EarthLink and others to pull back. New EarthLink CEO Rolla P. Huff said in his July 26th earnings call that his company would "delay any further build-outs and scale back operating expenses. An understandable move given that EarthLink has lost money for the past four quarters and estimates that it will continue to lose money throughout the end of this year.

It seems to me that EarthLink has committed two classic innovation blunders. First, it took a disruptive technology (Wi-Fi) and tried to apply it using a sustaining-type model (general public internet access), leading to significant losses. This blunder, however, would have been quickly corrected had they not compounded it by committing a second blunder; Instead of testing the assumptions of their business model in a cheap, low risk way (by first building Wi-Fi networks in smaller cities or by building a network for limited and specific uses instead of general public access), EarthLink tried to "go big immediately. It wasnt patient for growth, nor impatient for profit.

In so doing, EarthLink learned that it isnt reasonable to expect a profit from public subscriptions and ads. It learned that it should require cities to cover some of the costs of construction, or at least sign up as anchor tenants for the network. These are lessons that theyve spent untold millions learning. Millions that they neednt have spent if theyd have followed the principles of disruptive innovation that we at Innosight advocate.

And following the principles of successful disruptive innovation is exactly what Id recommend to EarthLink now. Im convinced that Wifi still has disruptive potential. (Even if other technologies, like WiMax loom on the horizon). To harness this disruptive potential, EarthLink (and others) should look first to develop profitable foothold markets, remembering that it should be patient for growth, but not for profit.

EarthLink might find that municipal WiFi is better suited to smaller cities and markets where other competitors (the DSL and Cable internet providers of the world) are absent or less willing to lower prices in order to respond, and where rollout costs are lower. Indeed, many of the 400+ municipalities that have built, are building or are planning to build Wi-Fi networks are smaller, "tier 2 or "tier 3 communities. Not all of these small communities are success stories. For every St. Cloud, FL there is a Lompoc, CA, but the stakes are lower and the sort of lessons EarthLink needs to learn in order to finally develop the profitable business model it needs before it can make it in San Francisco and other big cities will come cheaply and with less pain.

It might also apply jobs-to-be-done thinking to municipal Wi-Fi. What jobs, other than giving the public internet access, can municipal Wi-Fi get done? St. Cloud, FL found that emergency response services including firefighters and EMTs were greatly benefited by Wi-Fi. Corpus Christi, TX built a municipal Wi-Fi network in order to more efficiently and cheaply monitor utility usage. Perhaps convincing cities to subsidize subscription costs as a way to help bridge the "digital divide amongst city residents meets a political job. While each municipality is going to have its own unique set of jobs, I would bet that many of the jobs will be present in most communities. If it can turn municipal Wi-Fi into solutions for these sorts of jobs (particularly those that cant be accomplished by competing technologies like DSL or Cable), it might find success.

The bottom line is that municipal Wi-Fi is a technology that companies like EarthLink (whom I have singled out here in this entry because of their prominence, I could have written about others) have failed to apply with a sufficiently innovative business model. But if they can learn the right lessons from their struggles and develop a better business model through the application of disruptive innovation principles and jobs-to-be-done thinking, there is still hope.