Published In May 2000
The concept of home networking has attracted growing interest over recent months. However, as with most "hot topics" that capture the general media's imagination, the real market opportunity can only be gauged by applying equal doses of optimism and skepticism. Another useful ingredient is clear definitions, and this applies especially on the subject of home networks. As we shall see, there is more to this subject than simply wiring up the home. Background Three major industry groups - consumer electronics manufacturers, the personal computer (PC) and software industries, and the mobile communications players - are positioning themselves for what they see as the "home network opportunity." None of these major organizations is pushing home networks in order to become a major player in home networking itself. Rather, they want to create a platform of interoperability on which they can build new product and service opportunities, in which they will have a major stake. Home networks can be wired or wireless. We tend inevitably to think of networks as wired, but only because that is what we are familiar with from today's typical office environment. As we shall see, the home market may prove to be rather different. The concept of the networked home is nothing particularly new. My own company published a comprehensive study back in 1986 entitled "The Interactive Home." The report examined the various initiatives aimed at providing "seamless connectivity" between a wide range of information appliances. Already, 15 years ago, we could see that the arrival of the digital consumer electronics age would result in whole new categories of devices and services. The vision has remained the same, and is now being explored by a powerful new group of players. Each one sees his own device as the "gateway" to the home network. Control of this gateway will, naturally enough, ensure that their business booms. Mobile telephone manufacturers see the cellular handset as the natural starting point for in-home interdevice connectivity and communications. The cellular telephone, after all, is becoming ubiquitous. As the capabilities of these telephones are expanded, through the addition of data facilities such as e-mail and Web browsing, they will soon have the ability to do a whole lot more than simply letting you talk to people. As far as ordinary households are concerned today, most of the real home networking activity is taking place with personal computer players. As consumers migrate from having one PC in the study or den to having several scattered around the home, there is a clear need to share the facilities each of those PCs relies upon. Internet access is the obvious example, since no family would want to tie up two telephone lines unnecessarily or pay for more than one Internet service. Finally, there are the traditional consumer electronics players like Sony, Panasonic, and Philips. Their traditional domain is the television set and its associated peripherals, which they see as the stepping stones to the emergence of the home network. Their vision is driven by the concept of distributing video around the home from one central terminal to different display devices or peripherals. The ultimate challenge in all these approaches is to create a set of standards that will allow all devices to talk to each other, and each set of players has been developing its own solutions to the interoperability and connectivity problems. Bluetooth, a short-range solution using the 2.45 GHz band, is the technology on which leading mobile communications players like Ericsson and Nokia are placing their bets. Motorola in particular is supporting a rival wireless technology, known as HomeRF. The vision of all these players is a world in which mobile telephone handsets connect with laptop PCs, personal digital assistants, TVs, hi-fi systems, in-car electronics devices, and almost any other appliance you care to mention. Thus, the mobile telephone becomes the "communications gateway," through which not only voice but data services of various types are delivered to other appliances around the home. PC players are taking both a wired and a wireless approach. The obvious tried-and-tested solution in the PC environment is Ethernet. The industry has therefore developed a home-based Ethernet-like standard known as Home PNA that uses existing telephone wiring. This has evolved from Tut's Home Run technology, and is now supported by a number of PC and telecommunications companies, including Compaq, IBM, and AT&T. The same PC players, as well as Microsoft and others, are also supporting the wireless HomeRF initiative. Finally, the consumer electronics industry's home network standard is known as HAVi (Home Audio Video Interoperability) and is based on IEEE 1394, also known as FireWire, and Sun's Java technology. HAVi offers very high data-transfer speeds (currently to 400 Mbps, with two Gbps planned), and the six-wire cable can supply up to 60 watts of power. IEEE 1394 is becoming commonplace on video peripherals such as digital camcorders, but it is a relatively expensive option and does not yet have the widespread support of the PC industry. As far as marketing is concerned, the mobile telephone manufacturers can push a wireless connectivity option into the market, as long as it remains inexpensive. The PC companies are expected to continue to pursue the HomeRF route they prefer. We believe that Apple's iBook will set the trend in offering wireless connectivity as an option in the consumer notebook market. The problem with any of the wired options is cost and complexity of installation. The new-build market is an obvious place to start getting around the problems of cost and installation complexity, and it is happening there. The National Association of Home Builders estimates that up to 10 percent of new homes now incorporate some form of prewired home networking, usually Cat 5 and/or coax cable. Nevertheless, with around 1.5 million homes constructed each year in the United States, prebuild cannot bring home networking to the mass market for many years. Retrofitting wired networks is a more difficult proposition, since the cost of installing a network can range from $1,000 to $10,000, depending on complexity. Our scenario suggests that while some users will continue to install PC networks, wireless alternatives will penetrate the PC market eventually. TV-based terminals will also be upgraded with increasing home networking capabilities. Nevertheless, the real opportunity may come from the emergence of next-generation personal communications devices. In the coming years we are sure to witness an enthralling battle for control of the gateway to the home of the future. MERCER is a senior analyst with Strategy Analytics in London, England. He can be reached by e-mail at Dmercer@strategyanalytics.com.