It's becoming a ritual of every Consumer Electronics Show. As the purveyors of geeky gizmos gather each January in Las Vegas, proponents proclaim this as the year that home networking finally takes off. Right on key, New York-based market researcher Allied Business Intelligence predicted at the 2001 show that sales of the technology that could produce talking refrigerators, video on demand, and mind-reading heating systems will soar to $4.4 billion by the end of 2005, vs. $803 million in 2000. For the faithful, the Jetsons-like lifestyle we've all been waiting for has nearly arrived.
Then there's that other ritual: Watching home networking flop for yet another year. "People get really excited about this technology, but it's hard to make it work," says Schelley Olhava, a senior analyst who covers home networking for market researcher International Data Corp. "There is definitely not going to be a revolution this year." Other analysts -- and even many of the companies that build home networking products -- seem almost ready to call off the revolution entirely. "It's not going to happen in a big wave," predicts Matt Swanston, a spokesman for the Consumer Electronics Assn. "It's going to be an evolutionary process."
So just when will this exciting new market evolve? Home-networking visionaries fall into two camps: Those that believe that the future is "plug and play" -- stuff so idiot-proof that someone who can run a dishwasher can probably set it up. And those that believe that professional help will be necessary, just like it is for cable and satellite TV.
WIRED, OR NOT.
First, a word about what home networking is. It's any technology or service that makes it possible to connect home appliances to each other, or perhaps automate them. The appliance can be as simple as a stereo, which for example you might want to hook up to your PC where you have downloaded MP3s. Or it can be as complicated as central air conditioning unit, which you may want to use to automatically regulate the temperature depending on how many people are in a given room.
The appliances can be connected in two ways: through wires, such as your phone line or fast coaxial cables called ethernet, or through wireless "gateways," devices that act as hub through which the appliances talk to each other. And all of this is supposed to cost something less than the $53 million Bill Gates recently spent on his 66,000-square-foot, supernetworked estate.
Costs aside, the knotty question is how to get consumers to use this technology. Plug-and-play advocates argue that if home networking is going to catch on, it has to be easy to install. "If we're not able to figure out a way to make it easy enough for the nine-year-old in the house to put this together, then we have failed in our job," says Brent Lang, the director of solutions and services for home networking at 3Com.
3Com and its competitors, which include chipmaker Intel, Apple, and startups such as 2Wire, Linksys, and NetGear, are building ethernet and wireless gateways that allow consumers to hook up their computers and peripherals to a broadband Internet connection and to each other. "A lot of people can't afford to have someone come and wire their whole house. The mass market is going to have to be plug and play," adds IDC's Olhava.
Within this category, wireless is expected to take off. Although wireless products generally cost about twice as much as ethernet or phone-line gateways, avoiding complex wiring is attractive to consumers. Analyst projections don't break out the expected growth of different kinds of home networking products. But Intel's experience in the business provides a case study. The chipmaking giant, which builds both wireless and phone-line versions of its AnyPoint networking product, says that wireless gateways account for more than 60% of AnyPoint sales. It might be more, the company says, had not Christmas sales been hurt by a severe shortage of wireless products.
Based on this trend, most in the plug-and-play camp are backing off efforts to build complex gateways that would allow consumers to do everything from starting their dishwashers via the Net to downloading movies on demand. Cisco Systems made a big marketing push for its high-end gateway last June but in January put those product plans on hold. "Today all people need are simple ways for multiple computers to share an Internet connection," says 3Com's Lang.
But the evangelists of full home automation aren't dissuaded. They believe that the real market -- and big profits -- lie in sophisticated networks. Simple products that link computers to, say, a printer won't cut it. "It's a do-it-for-me kind of marketplace not do-it-yourself. It has to be networking for dummies," says Kurt Scherf, an analyst with Dallas-based market researcher Parks Associates.
Companies such as IBM spin-off Home Director learned this the hard way. The company's first foray into home networking, a do-it-yourself retail kit that sold at Radio Shack in the autumn on 1997, was not successful. Although consumers liked the concept, there was a huge gap between what they wanted and what they were capable of installing. "When I go home at night, even I don't want to be a LAN administrator," laughs Lee Griffin, Home Director's COO. "We were the first to realize that to really give consumers what they want, you need a professional."
To date, the company has installed about 100,000 of its Network Connection and Controller products, which can cost anywhere from $600 to $20,000. Home Director's strategy is to sell consumers packages that include entertainment, communications, and security features. "We just ask them what they want. We don't want them to have to understand the widgets and gadgets that make it work," says Griffin.
Which approach will prevail? Still hard to say. Sales of do-it-yourself gateways remain minuscule. According to PC Data, Intel's AnyPoint grabbed more than 50% of the home-networking retail market in December, 2000, but the company sold only 12,000 units. As for the higher-end networks, the market is tightly linked to new-home sales, since it's cheaper to install complex systems during construction. Depending on which estimates you believe, anywhere from 800,000 to 1.6 million new houses will be built by 2003 with the wiring necessary for a truly networked home.
"The companies that survive are going to be those with the patience to wait out the ramp-up period," says Parks Associates' Scherf. "Furthermore, it'll be those with realistic business plans -- those that project strong growth, but also take into account that it will take some time to get this market fully spurred."
Analysts agree that the two big catalysts for home networking are going to be broadband Internet service and the availability of entertainment applications such as video on-demand -- both of which have been slow to materialize.
And don't expect a big change on these fronts anytime soon, either. "I honestly don't see things changing in the next five years," says Robert Poor, a researcher at MIT MediaLab, who is looking for ways to embed networks into everyday appliances. "It is only when we get have a rich environment of highly connected stuff that computers will actually be able to do things that are useful to us." If he's right, the days of living like the Jetsons are still a ways off.
By Jane Black in New York
Edited by Douglas Harbrecht