(Editor’s note: This is a corrected story. A previous version incorrectly stated the number of Boingo hotspots and the loss of subscribers)
Savvy investors may look at Boingo nearing an expected initial public offering this Friday and consider it a shame the company didn’t go public sooner.
There was a time when the company’s paid wireless Internet-access, or Wi-Fi, business could have had the biggest impact, making it an attractive proposition to those already making money on the then-booming laptop and netbook PC business.
The question is, how long can Boingo profit from selling a service that is increasingly being given away for free?
Boingo controls a network of over 325,000 hotspots around the world. Chances are if you’ve traveled through a large airport or stayed at a hotel in New York or California, you’ve used the company’s service. The company charges for either limited, single-use sessions or offers subscriptions.
Boingo is looking to raise $75 million with this Friday’s IPO. In turn, it’s hoping to broaden its network, growing its subscriber base in the process.
As Ina Fried of All Things Digital points out, though, the company faces an uphill battle. The company pulled in $80 million in revenue in 2010, which was up almost 19% amid overall subscriber growth, but each month more than 9 percent of Boingo’s paid subscriber base drops out. That forces the company to constantly refresh its base for new users.
The falloff has a number of causes: The rapid proliferation of smartphones providing Internet access through networks controlled by Verizon (NYSE:VZ) and AT&T (NYSE: T) is certainly competing with Boingo’s business, but more troubling is the increasing number of locations giving Wi-Fi access away for free. Starbucks (NASDAQ: SBUX) began offering free Wi-Fi in July — with more than 17,000 locations, Starbucks’ network alone limits Boingo’s marketability.
When you factor in networks at businesses like Barnes & Noble (NYSE:BKS), McDonald’s (NYSE:MCD), and others, paid Wi-Fi becomes a less marketable proposition in 2011.
However, there is at least one factor working heavily in Boingo’s favor: the popularity and rapid sales of devices like Amazon’s (NASDAQ:AMZN) Kindle and, more importantly, Apple’s (NASDAQ:AAPL) iPad. Although Apple hasn’t broken down sales between the differing models, the evidence suggests that the majority of the 4.6 million iPads sold in this year’s first quarter were Wi-Fi-only models, rather than those using Verizon and AT&T’s 3G networks. There are also the millions of iPad buyers who own the original model, which can only access AT&T’s network in addition to Wi-Fi.
A massive audience exists for Boingo’s service, but the burden is on them to make it attractive. The company will have to undercut telecoms like Verizon that offer mobile Wi-Fi hotspot devices as well as offer greater accessibility than people can get through free outlets like Starbucks. The unfortunate truth is that free Wi-Fi will eventually overtake Boingo, but that moment is still some years away. In the meantime, the company just needs to make the right choices to ride the wave a bit longer.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
