The nicer the hotel, the higher the price for Wi-Fi

Free WiFiThis is a response to a question posted on Twitter from @rharneson, with a nod to @BryanAlexander–the title is an application of Alexander’s Iron Law of Hotel Connectivity.

I tweeted “how annoying it was to pay for hotel Wi-Fi.”  @rharneson replied:

The nicer the hotel, the higher the price for Wi-Fi. Please explain the economics.

I’m not a micro economist, but let me try to understand and explain this. I admit that I’m using my own experience as an example, but I suspect it’s not un-typical.

People with money (either personally or on business travel) are more likely than people without money to stay in nicer hotels. This is me when I attend conferences. When I travel with family for fun, we are more likely to stay in a less expensive hotel.

People with money are more likely to need or desire connectivity.   I know that I mostly live in a world of ubiquitous connectivity. When I am home or in the office my laptop and Kindle are connected, making them work better. When I am in the car, my phone is connected. Email & social media follow me wherever I go. When I find myself in a place without connectivity, I am always surprised. Why can’t I look up a word from the eBook I’m reading on my Kindle? Of course, there are work-arounds, but they require additional effort that I don’t usually have to put in. When I travel to a conference, I tend to work a lot in my room. In such a setting, the value of internet access is significant to me.

When I travel for fun, I’m visiting friends or going to a place (e.g. beach, mountains, etc.). The hotel is a place to sleep, little more. I don’t expect to need Wifi, since I’m not there to work.

What is the price of hotel Wifi? I paid $9.95 per day last week at an otherwise nice conference hotel I won’t name. While it was aggravating to pay, the fee was less than 5% of my $200 hotel room. For that price, the convenience was worth it. (Note to hotels:  If the Wifi price is more than modest, I will consider alternatives; e.g. Wifi hotspot from my cell phone.)

Suppose the cost of offering Wifi is modest and largely fixed, whether one is supplying one room or ten. Then if, as a hotelier, you’re going to offer Wifi, but few people are willing to pay for it, the revenues brought in are likely to be minimal. So you might as well offer it for free, and offer it as a feature. Even though few people would pay for it, more people will use it and feel good about your hotel. On the other hand, if most people are willing to pay for it, you might as well charge them as long as you keep the price modest.

Image Credit: WIFI FREE! LLIURE! GRATIS! by paco, reme y nina roman pomares via Flickr.

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One Response to The nicer the hotel, the higher the price for Wi-Fi

  1. Thank you, Steve. That makes a lot of sense.

    Perhaps this will persist as income inequality rises.

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