Why free Wi-Fi could (help) save Starbucks

Starbucks' wretched earnings report this week may unnerve fans of coffee and out-of-office Wi-Fi, but now there's evidence that keeping customers hooked for free is smart business practice that could get them over this little depression.

Take Seattle. Seattle knows coffee. Seattle knows Starbucks -- they've got hundreds, not to mention corporate HQ sitting just south of downtown. And Seattle knows no limits on its Wi-Fi craving.

Many segments of the Seattle community also know how to squeeze a nickel so hard Jefferson's forced to move out of Monticello. And so the dominant recession-era trend in Seattle so far has been not to cut off Wi-Fi to patrons (our informal Tuesday survey found just one coffee shop that has unplugged its systems altogether, citing overcrowding in the restaurant), nor to require them to sign up with a dedicated provider such as Boingo, but to go with either free or free-with-purchase access.

Which means Starbucks is only slightly behind the times. Early this year, Starbucks announced that it would shift from the T-Mobile daypass and account systems to an agreement with AT&T that includes two free hours of Wi-Fi every day for users of the Starbucks gift card. (Day-pass-style payment options are also available.)

Fine, and there seems to be no shortage of patrons hunched over laptops in any of the several Starbucks stores within a few blocks of this reporter. But a while back, some of the local coffee shops compared notes and noticed something about people who paid for Wi-Fi access in their establishments: They aren't the best customers. They tend to hunker down with one cup of coffee and nurse it, eking out as much time as they can on the expensive Net hookup.

In contrast, the then-few coffee shops offering free Wi-Fi reported that customers in their stores were vacating their tables more frequently -- and, said some owners, spending more on a second or third beverage if they did stay (and stay and stay).

Counter-intuitive? Sure, but Starbucks could have figured it out based on its experiences opening company-branded cafes in Barnes & Noble.

A executive who worked closely with the B&N-Starbucks deal back in the early '90s (who requested that his name not be used) explains it thus: The conventional wisdom held that letting people near your books with coffee was crazy, and letting them plop down with coffee and read right there in the store was doubly so. And in comfy chairs? Madness!

And yet? When tests were done, B&N found that readers tended to go to the cafe area with an armful of books, read partway through one...and head for the cash register with at least some of the armload, where previously they might have pared down their selections on their walk to the register. (So they could go home and read in comfortable chairs with coffee, one likes to think.)

Similarly, the splendid main branch of the Seattle Public Library surprised many in 2004 when it unveiled its majestic main-floor "Living Room" reading lounge, complete with coffee cart. When a reporter quizzed the library staff about the advisability of putting liquids in the library, the press liaison at the time quipped, "Well, we thought about it and realized that we let people check out books and take them home, and they've got any damn thing in those places. So why not let them have their coffee here?" And so they do; Seattle's library system is among the most heavily utilized in the country.

If coffee can boost reading, surely reading (even the sort done on a computer screen) can boost coffee. Since the informal comparing of notes about customer usage patterns, the number of coffee shops and restaurants offering free Wi-Fi in the Seattle area has shot up from a couple of dozen to well over 200. And though many people are cutting back on the purchase of CDs, novelty mugs, barista teddy bears, and the other stuff one finds in a 'bucks these days, in Seattle at least both Wi-Fi and caffeine are basic requirements for living.

With unnecessary expenditures pared to the bone and so many independent and smaller-chain competitors willing to attest that a customer not spending money on Wi-Fi is a customer willing to lay out for an extra cup or two of joe, can Starbucks afford to do anything but try the free Wi-Fi route?