Article

Where in the World are Web Payphones?

In public spaces, consumers are slowly getting their arms around the concept of paying for Internet access at kiosks, or Web payphones, but it's far from what you would call an embrace.

November 18, 2002

Were Superman introducing his hero bit today, there's no way he'd choose phone booths as his newsman-to-superhero transformation chamber. By the time Clark Kent found a public telephone booth on a city street, any disaster perpetrated by the bad guys of Metropolis would be complete.

Of course, the vanishing public payphone, thanks in large part to the advent of wireless phones, is slowly giving way to a new public access device, one that performs multiple tasks and has the potential to replace the common pay phone in many locations.

Francie Mendelsohn, who recently published the second edition of a report on Web Payphones, concludes that during the next five years, the number of these devices will grow dramatically, from the current level of just a few thousand to more than 200,000 internationally and 100,000 in the U.S., by 2006.

The Summit Reseach Associates report said many of the 100 or so kiosk companies currently deploying some form of Web Payphones have embarked on a land grab to get the best locations, and more imaginative placements are coming.

"When you have time to kill, the Brits call it dwell time," said Mendelsohn, president of Summit Research Associates. "We all have to be at airports longer that we want to, but everybody (providers) wants to be at airports. In hospitals, waiting rooms, even car repair shops - places where you are waiting."

Biz-Opps

During the boom years (months?) of the dot-com boom, one can't-miss idea had it that a business could provide free public Internet access at kiosks in shopping malls and pay for it with advertising revenue. Companies who based their success on this business model, implemented by now-defunct firms such as BigFatWow and CyberXpo, went the way of the Pets.com sock puppet.

"The big questions is, `Can anybody make money on this?'" said Mendelsohn, who believes they can. "You have to have patience. You've got to make people pay. Giving it away will not work. People don't mind paying."

Mendelsohn's report tests 11 applications of Web Payphones around the world. American Terminal made one of those she tested and has launched an aggressive marketing campaign to sells its kiosks. This "business opportunity" strategy is paying big initial dividends, according to chief of operations David Finer.

"We sold 100 machines in our first month," said Finer, who said American Terminal is spending more than $25,000 per week to advertise the business opportunity on television outlets including CNN and Court TV. Finer said his terminals sell for $15,000 each.

Using a similar approach, Nationwide Cybersystems Inc. markets its kiosk for $13,995, and illustrates on its Web site a potential revenue stream of $3,960 annually on just five transactions per day.

"It's fantastic that they're establishing the demand and getting the response they're getting. They're spending a crazy amount of money on advertising." Bob Gallner, NetShift

American Terminal, which has a network of 30 terminals including one in Atlanta's Hartsfield International Airport, offers entrepreneurs a chance to own and operate Web Payphones equipped for voice conversations and access to the Web. Most of the company's devices have a credit card and coin acceptor, touchscreen, bill acceptor, keyboard and printer. Some have video cameras as well.

The money spent on marketing the terminals may be good for the kiosk industry, according to Bob Gallner, NetShift's vice president of sales, USA.

"It's fantastic that they're establishing the demand and getting the response they're getting," said Gallner. "They're spending a crazy amount of money on advertising."

These "biz opp" offers have their critics, among them Mendelsohn, who questions the revenue potential for these described in the ads and the business acumen of those who respond to them. "They are legal. Nobody ever went to jail for being stupid and gullible."

Gallner is wary of the business model as well, and hopes that any failures don't reflect poorly on the industry. He's concerned that inexperienced operators may have a difficult time operating the terminals. "People get those machines and don't know how to operate them. It's more just plugging them in. There are still going to be issues," he said.

As seen on TV

Finer said American Terminal both operates its own network of Web Payphones and sells the machines to individuals as a business opportunity. He said the "biz-opp" business is taking off, and the company is getting a phenomenal response to its television ad campaign.

"We've had everything from the sophisticated wealthy engineer to taxi cab drivers," Finer said. "We're different than anybody else because we can justify our earnings because we have our own machines."

Entrepreneurs responding to the ad can buy one of American Terminals' machines, complete with bells and whistles for Internet access and a long list of other features, for $15,000. The price may come down to as low as $10,000, he said, for those who buy in larger quantities. Then Finer said the company may help the buyer establish a location.

"Either we tell you how to roll up your sleeves and do it yourself or we introduce you to a locator," Finer said.

Finer said that during October, the first month of television advertising, the company sold 100 terminals. And he said the network of 35 terminals he operates is making real money.

"One machine in the Atlanta airport does $1,200 a month with basic Internet and e-mail only," he said, adding that other applications with more revenue-generating potential will be installed on the kiosk network soon.

Of course, this type of business opportunity can be misused. One preyed upon elderly investors who eventually filed an $8.2 million lawsuit against Web Booth Inc. The kiosk development company promised to place kiosks in McDonald's restaurants. But the money invested disappeared along with Web Booth's owner after just 40 of the kiosks were installed.

NetShift is taking a different approach to marketing its "Shibby" kiosks, which feature Web surfing, e-mail, games and other applications on a pay-per-use basis. Gallner said the he's seeking customers with business experience in similar fields, such as vending. The Shibby concept resulted from a meeting held during KioskCom last spring with executives of Kiosk Information Systems.

The first rollout of kiosks is taking place in November at Denver International Airport, with 32 kiosks.

"Our focus is to provide solutions for more professional companies, people that already understand the business model," Gallner said. "To succeed in pay-per-use, locations and promotion is everything. The jury's still out on whether it's a successful business model, but now you can package it with applications that can make money."

Gallner said NetShift sells its Shibby kiosk for $7,200, which includes hardware and software maintenance and support, but no location assistance.

And, like the other biz-opp offers, return on investment can be realized quickly, according to company documents available on its Web site. NetShift, in its published example, shows how the Shibby can produce a $600 monthly profit based on two hours operation daily with a 25 cents per minute charge.

Added Functionality

Info Touch is another company providing kiosks as a business opportunity to individuals and organizations. Chief marketing officer Joseph Nakhla said the important thing about his company's joint investment opportunity program is that it allows investors to enjoy multiple revenue streams. That is, Info Touch has modeled each kiosk for its particular location and installs specific applications that fit the deployment.

Nakhla said that some are designed to bring in revenue on a pay-per-use model, some on advertising and some on transactions. Info Touch, along with Circle K stores, has launched an extremely successful program in Phoenix. In that market, Zaplink kiosks accept cash payments for wireless phone bills, as well as provide revenue in the form of pay-per-use for e-mail and Web surfing.

"What sets us apart is that we're so in tune with the return and the business model," he said of the program, which includes applications at convenience stores, military bases and restaurants. "It's an obvious extension of where payphones left off, and the multiple revenue streams are a great way to go because you don't have all your eggs in one basket."

The Payphone Opportunity

Consider the plight of the pay telephone. Some say wireless telephones have all but replaced it, and there are plenty of numbers to support that view. In Australia, for example, 17 percent of the country's pay phones disappeared in the first half of 2002, according to The Age. In Britain, a country with some 150,000 pay phones, up to 12,000 will be removed from service by the end of the year, according to The Guardian.

The basic payphone business model was this. An individual or company bought or leased the phone, placed it and emptied the coins on a regular schedule. When successful, the revenue paid for the cost of the phone plus any other charges to keep it operating.

But that business model has been is failing at a rapid rate, and organizations involved in that business are seeking new opportunities. And many are getting out of that business and into a similar business, one with more opportunities to make money from different applications.

According to Mendelsohn's report, the only reason owners haven't moved more quickly to Web Payphones is cost. Web payphone prices, it said, may be five times the cost of a fully functional payphone, which runs about $1,200. Those being marketed by American Terminal and National Cybersystems are priced up to $15,000. That, however, may be changing as well.

"The cost of the units is coming way down," she said. "That makes them affordable and the pay phone guys can deploy a lot more. But the cost is still high. They have to get it down considerably."

[Editor's note: Info Touch Technologies became Tio Networks in April 2006.]