Excerpts from the blog Fixing the Wi-Fi mess at Starbucks had to be one of the things on Howard Schultz's "to-do" list when he jumped back...

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Excerpts from the blog

Fixing the Wi-Fi mess at Starbucks had to be one of the things on Howard Schultz’s “to-do” list when he jumped back in to right the ship. I wonder if he’ll be tempted to go overboard.

Apple enthusiasts are fired up because it gives them more places to get acceptable download speeds with their iPhones. Starbucks will also have the flexibility to do more content deals like its iTunes click-to-buy offering.

It’s a good deal for AT&T and its customers, but this is really all about Starbucks. It’s fixing a problem at the chain, pulling more customers into the stores and creating new opportunities.

I remember when the Tully’s near my house began offering free Wi-Fi a year or two back. The store is across the street from a Starbucks (and three doors down from another Starbucks, and kitty-corner from Peet’s and Caffe Lladro, but that’s another story … ).

The Tully’s manager told me sales went up about 20 percent after the store switched from paid to free Wi-Fi. But he had some issues with Starbucks customers who would carry their coffee over to his store and poach the wireless service.

Starbucks was probably getting a cut of the $6 per hour or $40 per month that T-Mobile USA charged for wireless in its stores, but that pricey service was driving foot traffic to other stores. The arrangement made more sense in the early days of wireless when it was more expensive to provide the service, but those times have passed.

When it came time to renegotiate, it was probably hard for T-Mobile to compete with AT&T, which is hell-bent on extending its data services. Starbucks must also be looking for ways to be sure its stores still offer value when consumers cut back on spending during the downturn. First, it experiments with $1 coffees, and now essentially free wireless.

But the genius of the deal is the way Starbucks is authenticating its wireless customers. To get the Wi-Fi, you’ll have to “check in” with a Starbucks card. That gives Starbucks a big new opportunity to upsell, an opportunity that’s far bigger than the iTunes deal.

In effect, the Wi-Fi becomes a storefront within a store, with a built-in transaction system. When you fire up the laptop or mobile device, Starbucks could greet you with a welcome screen that identifies you by name if you use a credit card to load your Starbucks card. That screen can be used to offer music and other content — maybe even to order additional beverages. You’ve signed on with your Starbucks card, so it knows how much credit you have, and the amount can be deducted from your card.

That system would be so potent, it could tempt Starbucks to interrupt your browsing with offers. There may even be ads luring you back to the Wi-Fi storefront. That seems fair during the two free hours, but it would be obnoxious for those who pay for longer usage.

AT&T broadband customers, who are getting free access at Starbucks stores under the deal, may resent commercial intrusions into a service they feel they paid for through their AT&T subscriptions.

But if Starbucks gets obnoxious with wireless come-ons, you should be able to walk across the street and find a more-palatable wireless service.

Venture-capital outlook guardedly hopeful

The newly named Washington Technology Industry Association, formerly known as WSA, released its inaugural venture-capital outlook survey Wednesday, and found financiers are cautiously optimistic about deal quantity and quality but have ongoing concerns about finding talented executives.

Highlights from the study, which was sponsored by Ernst & Young and Perkins Coie:

On the economy: “The biggest challenge for the investment environment in the first quarter appears to be the deteriorating public markets and the outlook for the overall economy, which could affect follow-on financing rounds and company exits.”

On valuations: “Survey results indicate that existing portfolio companies will continue to see positive revenue and employment growth for the first quarter. Fifty percent of the respondents state revenue growth will be moderately better than the fourth quarter of 2007; and 88 percent indicated a work force growth of more than 10 percent.”

This material has been edited for print publication.

Brier Dudley’s blog appears Thursdays. Reach him at 206-515-5687 or bdudley@seattletimes.com.