Google's Wi-Fi Nation

FON, a privately held company based in Spain, has a lofty vision; It wants to provide Wi-Fi access to the world. Impossible? Well, maybe not. The company now has the help of some heavy hitters -- including Google (Nasdaq: GOOG  ) and eBay's (Nasdaq: EBAY  ) Skype -- in the form of a Series A investment of $21.7 million.

FON has assembled a star-studded board: Cisco (Nasdaq: CSCO  ) Vice President Mike Volpi; Niklas Zennstrom and Janus Friis, the co-founders of Skype; and Danny Rimer, a partner with Index Ventures.

FON is a young company, having launched its beta product in November 2005. So far, there are about 3,000 users. By 2010, FON wants to have roughly 1 million hotspots across the world.

FON's downloadable software turns a computer's wireless router into a wireless hot spot. To get free Wi-Fi access, users agree to make their computers available to other users. If a user doesn't want to share, he or she must pay for the service from other members.

The idea is to make the service increasingly viable via viral marketing. Broadening access under FON depends on an increasing number of people making their computers available, much like peer-to-peer file sharing. The advantage for users? They get free access in many places -- so long as the software becomes a success.

It is no secret that Google has Wi-Fi ambitions. However, Wi-Fi includes lofty infrastructure costs and the complexities of dealing with local governments. An innovative approach like FON's may be critical to Google's wireless success.

For companies like Google, the investment in FON is very small. But if FON can get traction, it would have a disproportionately positive impact on Google's businesses. More usage on the Net means more usage of Google products, and the company's advertising model needs more traffic to generate more revenue. It's really that simple.

On the bottom line, Google's online footprint is still very dominant. But Google's big problem is finding a new killer application other than search, or driving more users to its search products. Search is wildly profitable and spins off tremendous amounts of cash. To support its massive market cap, Google needs an encore -- which it seems to be seeking in FON.

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Fool contributor Tom Taulli does not own shares mentioned in this article.


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