Tracking your Wi-Fi to supercharge local search
Skyhook is mapping the nation's wireless access points to provide sophisticated local search services.
By Jia LynnYang, Fortune reporter

(Fortune Magazine) -- For a man who doesn't own a wireless laptop, Nandoor Sala spends a lot of time looking for Wi-Fi signals. One clear morning this spring, Sala is driving stick-shift around Midtown Manhattan with an HP pocket PC affixed to his dashboard. He points to the screen, which shows nine blue bars quivering up and down in tune with the wireless signals all around: "This crazy thing is my master."

Sala's actual boss (or at least his employer) is Skyhook Wireless, a small Boston company that's on a mission to map every Wi-Fi access point in the country's 100 biggest cities.

Nandoor Sala maps Wi-Fi signals around the country for Skyhook.

The goal is to create a location technology akin to GPS - except instead of using satellites, Skyhook will harness the data from its database to determine the location of any device with a Wi-Fi antenna.

The payoff for developing this kind of location-aware technology - which big players like Yahoo (Charts) and Google (Charts) are already using to some extent for their own local search tools - is that online advertisers can use it to track consumers and target them based on where they are.

This is already a big business, and many analysts believe it's about to explode. According to the consulting firm Kelsey Group, the U.S. market for online local search was over $1 billion last year. It predicts that local search volume will exceed 15 billion searches by 2007 and that the market will be worth roughly $6 billion by 2010.

Contextual advertising

How does it work? Say you're at an airport at the crack of dawn, and you flip open your laptop to hitch a wireless connection. If your computer has a Wi-Fi card, all it needs is Skyhook's free software - which offers users a toolbar with info on local weather, traffic, etc. - to locate itself in the network. Then Skyhook can, for example, help route you an ad for the Dunkin' Donuts 350 feet away.

Some of this presumes, though, that users are always searching for services nearest to where they are at that moment. As Paul Levine, head of Yahoo Local points out, "Where you're at is most important sometimes, but sometimes you're searching from somewhere else."

That may be true. But Skyhook sees a big, growing market with nary a direct competitor in sight. "There's Wi-Fi everywhere now, and that's what we're taking advantage of," says Ted Morgan, the company's founder and CEO.

The 39-year-old Morgan, formerly at online billing company Edocs, launched Skyhook in earnest a year ago. Funded with $8.3 million from Bain Capital, Intel (Charts), Nokia (Charts), and an angel investor, he set out to map the 20 million to 30 million Wi-Fi access points nationwide. Already Skyhook has collected data on ten million hot zones, a coverage area of half the U.S. population.

To do this, Skyhook has hired some 200 drivers who have logged more than one million miles this year going up and down their neighborhood streets to collect data.

Case in point: Sala. The son of Hungarian nationalists, he fills his driving time by listening to audiotapes of Madame Bovary. The only spot where he stops getting signals, he says, is a giant cemetery in Queens.

Sitting in his 1993 Nissan Sentra, Sala muses whether it's time to buy his own Wi-Fi-enabled laptop. "I do want to get one now," he says. "There's all these hot spots around."

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