While the home networking market will be boosted this year by consumers buying multiple PCs, surfing the Web, and telecommuting, widespread adoption may still be a few years away.
Although industry watchers predict that consumers will one day want to connect all these devices together, they also believe that issues such as ease of use and standards to enable devices to communicate still need to be determined.
A new study from GartnerGroup's Dataquest unit indicates that major industry players such as 3Com, Intel and the lesser known Diamond Multimedia will be in a good position to dominate the hardware side of the home networking market as the emerging technology flourishes over the next few years.
They are certainly likely to be in a stronger marketing position than the two other networking heavyweights, Cisco and Nortel Networks, because brand recognition will have a large part to play.
John Armstrong, vice president of Dataquest's networking worldwide programme, says: "They're early to market and have high visibility in the consumer marketplace and that's very important. It's harder for competitors to displace them because they have the retail and distribution channels. Those take time to develop."
The report, which is due to be released in early April at the Dataquest Predicts '99 Conference, forecasts that about 19 per cent of the estimated 33.3 million homes worldwide that have multiple PCs will be networked by 2002. In contrast, only 2.4 percent of the 18 million worldwide homes with multiple PCs were networked in 1998.
The most popular way to network homes will be via phone lines, followed by wireless and traditional Ethernet connections, but the least popular way will be using electrical outlets or power lines.
Armstrong explains: "The use of existing phone lines, while not a perfect solution, is the easiest way to implement since a majority of homes in the country have phone jacks where PCs exist. Wireless is much more flexible than phone lines, but it's more complex and more expensive. Power lines don't offer the same bandwidth and have limited appeal to consumers."
The report also indicates that Sun Microsystems and Microsoft "will duke it out over the operating systems (OSs) these networked devices will run on" over the next few years. Sun is creating Java based networking software called Jini, while rival Microsoft is touting its Universal Plug and Play technology.
"It will be a mix and match. Jini is certainly promising, but Microsoft has a strong presence and will give Jini a run for its money," Armstrong says.
He adds that Cisco's IOS, an extension of its Internet Operating System, could also have a role to play, but is more geared to becoming a home gateway or central server because it is designed for big networks.
3Com is also interested in building on its existing leadership in the consumer market, however, and as a result, has announced the formation of a Home Networking business unit.
Janice Roberts, 3Com?s senior vice president of global business development, says: "3Com intends to be the number one brand for connecting consumers. We will continue to invest in advanced technologies and innovative products that are critical to the success of home networking and connectivity in the consumer marketplace."
She adds that the new unit will "leverage all our technologies, including xDSL and cable broadband access, in addition to our Palm Computing platform."
And during 1999, the firm will start marketing a new range of home networking products under the Homeconnect brand name, which will complement its existing offerings.
3Com has also already made strategic investments in trying to develop home networking standards.
In June, 1998, it became one of the founder members of the Home Phoneline Networking Alliance (HomePNA), and in November, agreed to develop a new generation of high speed networking products with US start up Epigram for use with existing home phone lines.
And although 3Com and Microsoft are rivals in the personal digital assistant marketplace, in January, they decided to jointly develop Windows based networking products to help telecommunications carriers and businesses build networks that integrate voice, data and video.
They also plan to build easy to use networking hardware and software to enable users to network PCs, peripherals and most consumer devices in the home.
The Ethernet based technology, which will network PCs together over phone lines, is due in the second quarter, but a wireless offering is also expected to ship by the end of the year, followed by power line networking products to enable users to network their PCs via electrical outlets by 2000.
Neil Clemmons, 3Com's vice president of consumer marketing, says the aim is to make the products as easy to use and install as possible.
"That's why we will offer Ethernet, phoneline, wireless and power line connections. There's an Internet lifestyle emerging where access to the Internet will come from a number of devices. It won't be just one media, it will be multiple media. The goal is to create products that can interoperate and have common interfaces" he attests.
And Michael Wolf, a Cahners In Stat analyst, says the alliance is the largest so far in the home networking market.
"Each company is leveraging each other's strengths. 3Com is successful with modems and network interface cards. Microsoft brings expertise in terms of desktop software and operating systems," he adds.
But analysts also expect other companies to strike similar partnerships.
Panasonic has already invested an undisclosed sum in Epigram, while Cisco Systems has partnered with Hitachi and some 30 other companies to integrate its software into cable modems and set top boxes.
But analysts said that, although Cisco and 3Com are traditional rivals in the networking arena, they do not directly compete in this space. 3Com manufactures low cost networking cards and modems, while Cisco OEMs its software to third parties.
Intel is also putting a stake in the home networking ground, however, and says its Anypoint networking card and associated software, which will be launched later this month, will enable multiple Windows based home computers to communicate over already installed phone lines.
Lucent Technologies, meanwhile, is working with Epigram on writing a home networking standard that it hopes will increase data transfer speed tenfold. The firm plans to submit the specification to HomePNA in the second quarter, but the partners will develop their own separate products based on it.
They are cross licensing intellectual property and will blend Lucent's system on a chip, communications processor and home networking expertise with Epigram's knowledge of VLSI (very large scale integration) technology and high speed data communications over new media.
Cyrus Namazi, president and chairman of HomePNA, says that, while the organisation could become an umbrella organisation for home networking technologies, no meaningful discussions have yet taken place.
"It would be good ultimately, but there are pros and cons. The con is it might actually take away from the focus we've put on phone line. The pro is there would be more synergy for the total solutions that are being developed," he explains.
But Boyd Peterson, an analyst with the Yankee Group, says that vendors need to work out how to make it simple and cheap for consumers to wire their homes because only technology enthusiasts would currently attempt doing so at the moment.
"It's more like a debutante ball in 1999. You're seeing the manifestation of two years of work from the technology companies. They're coming out with their first commercial products," he explains.
But demand will be driven by faster Internet access and cheap PC prices, enabling families to buy more than one computer in future, he adds. A recent Yankee Group study found that 30 per cent of homes with more than one PC wanted to network them.
However, into the long term, the industry needs to create "must have" applications that consumers feel they cannot live without. While the first available offerings emulate office applications enabling users to share peripherals and Internet access, future ones will focus on communications and entertainment, Peterson believes.
And Jeff Thermond, Epigram?s chief executive, reckons the market will become huge when consumers begin to deploy digital technology. "It's a Field of Dreams scenario. We have built the infrastructure. They will come with applications," he attests.
In the meantime, home networking standards are moving forward. HomePNA?s Namazi says the organisation ratified specifications, which enable users to network home PCs using installed phone wires, in the third quarter of last year.
Products with speeds of up to 1 Mbps began shipping in the fourth quarter, and the aim is to increase this to 10 Mbps later this year.
Elsewhere, the HomeRF Working Group, which governs specifications for networking wireless devices to home PCs, adopted a provisional specification in late 1998 and expects products to roll out in the second half of 1999. It is backed by some 70 companies, including Intel, IBM, Hewlett Packard, Microsoft and Motorola.
But while analysts Cahners In Stat believe the US market will reach $230 million during 1999, and grow to $1.4 billion by 2003 as high speed cable and DSL services become more prevalent, most agree it is still a young industry and will take time to mature.
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