Published In October 2000
Many see home networking as a huge potential market. Contractors with a memory might confuse this boomlet with the home automation flop of the early- and mid-1990s. Is this more of the same, or something new—–and big? Population and business trends, affluence, the availability of high-speed Internet access, and the simple fact that even modestly well-off folks don’t want four telephone lines coming into their homes, are all feeding what is seen as a major near-term boom in home networking. Yet it hasn’t happened yet. Even if it does, it’s unclear whether most home networks will be hardwired (Category 5 or Cat 5e throughout a home), “no-new-wires” (using a home’s existing telephone or power line wiring), or wireless. Facts are facts, but forecasts are guesses at the facts of the future. For home networking, the future projections are stunning. Consider some of the not-yet-real-data a battalion of market research companies regularly releases: Broadband access was enjoyed by only 2.3 million of us in 1999, but it will be installed in 42 million residences by 2005. That’s a compound annual growth rate of 162 percent over the 1999-05 period! (Allied Business Intelligence, Oyster Bay, N.Y.). Relevance: distributing such access over a home network seems to logically follow a family’s spending money every month to bring in high-speed Internet access to a residence. Residential gateways are expected to be an exploding market, going from “a market that barely exists today to one that exceeds $2.4 billion by 2003,” according to Cahners In-Stat. Relevance: such a gateway connects a home-area network to the Internet, according to In-Stat. Home networking itself will be a $1.4 billion market by 2003, the In-Stat researchers say, adding that: “The number of single-PC homes with some form of network will increase from under 1 percent in 1999 to 9 percent in 2003.” Relevance: while homes with more than one PC will be most likely to want a home network, even some of those with just one computer are going to be buyers. Home networks surge: “by 2005 19 percent of households will have wireless networks, and 77 million wireless devices will be connected. Nearly half of homes will have two or more PCs, 19 percent will have broadband Internet and 11 percent will have wired networks.” (Strategy Analytics, London, England) Numerous additional statistical projections—from these and other sources—could be presented here. All are fairly expensive (typical cost: around $2,995). All see a boom in home networking within the next five years. Demographic push Were you to spend thousands of dollars and read the reports—or just cruise the Web and read press releases on the many forecasts—you would find what’s behind the various research firms’ analyses. They see a home networking boom, thanks in part to demographic and work trends. Homes with children need a network, it is thought. With more financial resources (and thus more broadband access), there will be more “bandwidth” to distribute throughout the home. Additionally, workers who have become accustomed to high-speed access on the job will want something similar at home, it is said—even if they plan to do no work at home. Plus, many white-collar workers do some work at home. While you’re at it, add a line for the home-office trend, plus the often-projected near-term-future boom in telecommuting. Note that the homebuilder Centex has research that even prospective owners of so-called low-end homes want networks. Centex conducts hundreds of focus groups each year on this subject (and others) with average citizens. Add all of these facts together, and the expectation of a boom may seem reasonable. Feeding this expectation are the actions of cable companies, telephone companies, and Johnny-come-lately broadband competitors—all of them moving heaven and earth to bring high-speed access to everyone in major urban areas, and right now! Such broadband efforts lead to projections such as this from Allied: “The structured wiring concept continues to gather momentum in the residential market. Total revenues from installations more than doubled from $67 million in 1998, to $147 million in 1999. Revenues will double again in 2000, increasing to just over $2 billion by 2005. “Driving this growth is the realization, highlighted by the rollouts of DSL and cable broadband, that most homes do not have the telecommunications infrastructure to meet the desired data and entertainment needs.” Disconcerting facts Beyond the projections to the reality of 1999 and 2000, however, the outlook for home networking (and automation: see accompanying story) could be deemed a bit discouraging. Some factoids: - IBM spun off its Home Director product line last year. Certainly, IBM is not known for making great decisions 100 percent of the time—a company miscue in a 1980 deal made Bill Gates a billionaire. But why give up on home networking now? - Similarly, at about the same time as the IBM move, AMP spun off its OnQ home networking operation. This was before Tyco acquired AMP. Again, the question is: After a great deal of investment in this market, why would AMP sell the thing to its managers? - Cahners In-Stat—one of the research firms quoted above—does real-time reporting as well as forecasting. In its report on the home networking market’s first quarter, it noted that, “While the number of overall nodes shipped dropped . . . overall revenue was up by nearly 10 percent.” For “nodes” substitute “customers.” Summing up these factoids: two big companies with computer and networking experience jumped out of the home networking marketplace just as it seemed to be heating up; and the number of customers buying networking gear in the first 90 days of the new millennium decreased. Were all of that not enough, there is a blurring—purposeful on the part of some market participants, or not—between home networking and home automation. A fine example was the March 2000 “Electronic House (EH) Expo” in Orlando, Fla., the first such event held. This reporter attended the event, and wrote a 7,300-word, two-part report on the Internet. (See the Web Resource Guide for the URLs.) From a point-of-view that would like to see home networking advance quickly, the main problem with the EH Expo was too much home automation! For example, a special keynote event featured four speakers about home automation, not networking. A fifth speaker, from Intel, showed a video he said was about automation, but it was actually about networking. Very blurry, was this reporter’s verdict. It seemed as if home-automation-oriented speakers were interpreting the event, and the turn-out of a decent-sized audience, as positive feedback about home automation’s future . . . when home networking might well have been the lure. A future in wiring homes? For electrical contractors, a future that includes hard-wired networking of homes—be it now, in the near-term, or even starting in 2005—probably sounds good. For one thing, it would greatly increase the value of a typical new home wiring job, hopefully leading to greater profitability. For another, should the use of structured wiring in the home catch on, there are roughly 100 million existing dwelling units that need such a retrofit. What’s more, there is no question that the major customers for hardwired structured networking at present—the homebuilders who want to provide such cabling as a standard or optional—are seeking help. At the EH Expo, several speakers noted the need for “electricians” (by which they meant electrical contractors) to get up to speed on home networking, and fast. Should your company invest in home networking training? At this moment, the future’s precise shape has not been defined, so any answer must be hedged. Certainly, many homebuilders are installing structured wiring in their homes—some as standard (certainly in higher-end units). Centex estimates that it will install structured wiring in some 12,000 or more of the 25,000 homes it builds in 2004. Kurt Scherf of Parks Associates estimates 40 percent of new homes in 2004 will have such wiring systems. With both of those numbers in the same vicinity, and roughly 850,000 to 900,000 new single-family homes built annually, contractors may see a growing opportunity from this year forward, to hit perhaps 350,000 to 400,000 new homes nationwide with structured cabling pre-installed during 2004. While that number might not be awesome, it represents a good deal of work. At perhaps $1,000 to $2,500 per home for such installations, the gross revenues (for some group of installers) could be on the order of $350 million on the low end to perhaps $1 billion on the high end. For discussion purposes, let’s pick a figure near the mid-point—$650 million. Note that this figure is a ballpark estimate. Certainly, some homebuilders will buy networking cabling and equipment direct, which would cut that figure. At least one networking system supplier reported receiving price requests from homebuilders for purchases of 5,000 to 10,000 systems. However, for the sake of discussion, let’s use the $650 million figure for 2004. How big is this potential new market, then? This magazine’s conservative projection for year-2000 gross revenues in electrical contracting is $89.5 billion. (Based on the Census Bureau’s 2000 employment figures so far, that number might need an upward revision.) Projecting out to 2004, the industry’s total revenue might well exceed $120 billion. At $650 million or thereabouts in 2004, home network installation in new homes would account for roughly .5 percent of the overall electrical contracting industry sales—or less. That’s why the creation of a market for providing wired networks to existing homes—a huge potential market—is so important to electrical contractors. While many manufacturers, consultants, and others are reportedly working on it, there’s not much to report on the retrofit front . . . thus far. Technology and Home Networking: A Briefing Let’s say you are a consumer and want to hook up all your home computers—yours, your spouse’s, and those of your two kids—to a single home network. You’ve got Digital Subscriber Line (DSL) access to the Internet, which you can share without extra subscriber costs . . . and without anyone battling for the telephone! How do the options look to such a person at this moment? Hardwired retrofit: You can hire an electrical contractor (or other service provider) to run wires through your walls and make holes in them for new faceplates. To have access throughout your house, you’ll need to make a number of new holes. You could choose a Cat 5e installation, and speed information through your house at Gigabit Ethernet speeds! The price of this: perhaps as low as $1,000, but more likely between $2,000 and $2,500. Use the existing telephone lines: you won’t get Gigabit Ethernet speeds here; we’re talking, at best, speeds under 11 Mbps. On the other hand, you can use the existing phone lines . . . no new wires, no new holes in the wall and, if you can read an instruction sheet, no contractor—no installation costs. Price: $89 to $129. Note that the Home Phoneline Networking Alliance consists of some heavy-hitting consumer and networking names: 3Com, Compaq, IBM, Intel, AT&T, and Lucent. Use the inside-the-home electrical system: Again, this option is slower than hardwired, but obviates the need for a contractor and is much less expensive. On the home automation side, X-10—perhaps the most successful home automation company and concept—has been sending control signals over existing home wiring for years. Use no wires at all: Wireless applications for home automation are the subject of a great deal of research. A technology called “Bluetooth” is seen as very promising. There are other alternatives. Again, this option is said to be slower but much cheaper than the hardwired option. Again, big names are behind this. Beyond the technological choices is consumer marketing. Who is promoting hardwired structured cabling retrofits to the mass market (the owners of 100 million homes)? No one as of now. On the other hand, Intel’s “no new wires” advertisements and promotions for its AnyPoint home networking system are fairly common in technology magazines and elsewhere. Who will do the work? Technological discussions lead to the concept of who will install a home network, and who will service it. Should hardwired retrofits of structured cabling systems catch on, this marketplace could be without limit for someone . . . including those service-oriented electrical contractors willing to embrace new technologies. However, thus far, many classes of potential home-tech installers have shied away from this market. According to Julie Jacobson, editor of Home Networking News, systems integrators and CEDIA-type installers have avoided home networking like the plague. She initially reported on this in a winter edition of HNN, and reconfirmed her conclusions in an August telephone call. At heart, Jacobson’s reporting has led her to believe that technology-oriented installers—experienced with home theater and entertainment systems—want nothing to do with a personal computer. Since networking involves computers, they won’t “do” networking. What are they afraid of? The common experience with Windows software—frequent computer freezes and crashes—could well come to be seen by the home networking customer as the fault of the installer. No installer wants that kind of frequent call-back, nor is any one of them prepared to get involved in on-site troubleshooting of their customer’s computers. Nationwide residential Networking Boosted via partnership Through an agreement between Leviton Manufacturing Company and Pulte Homes, nationwide residential home networking is no longer a futuristic dream. New homeowners will have the ability to simultaneously check e-mail, talk on the telephone, and surf the Web with increased speed. In its partnership with Leviton, Pulte Homes is making structured wiring standard in all its new residences, starting with Texas and Florida markets. Further pushing the networked home concept is Graybar Electric Company, which will be the primary distributor of Levitonís products throughout the country. Pulte will install Leviton Integrated Networks, a low-voltage system that supports everything from satellite and digital TV to whole-house Internet and networking, multi-room audio and video, home automation, and home security applications. Pulte will provide each new home with a standard package, including an enclosure box and panel, eight drops, amplifier, wall plates, jacks and connectors. Two upgrade packages are also available, and customers can customize any package to include additional options, such as a video unit and Ethernet hub. “These systems are becoming ‘must-haves’ for customers to participate in the digital revolution, allowing them to work or do schoolwork at home, or even use the TV as a baby monitor and start the oven by using the phone,” said Alan Laing, Pulte’s vice president of e-business development. “Your home can become obsolete without the necessary communications infrastructure to automate your home.” According to Leviton’s Vice President of Marketing and Product Management Bill Marshall, the numbers explain the trend. In 1998, 38,000 new homes had some type of structured wiring. In 1999, the number of networked homes more than doubled to 90,000. In 2000, the figure is expected to more than double again to 200,000. “The need to ‘futureproof’ a home is becoming more and more necessary as consumers do office work and kids surf the Internet for homework,” Marshall said. “It is an honor to be associated with Pulte and to be the first in the homebuilding industry to collaborate with a national homebuilder to provide customers access to leading-edge technology.” Marshall also predicts that structured wiring and Internet service combined will emerge as the fourth utility, alongside electric, telephone, and gas service. As these systems are installed into more homes, they will become a critical selling point when homes go onto the resale market. In just a few years, buyers of existing homes will expect homes to be networked. SALIMANDO, a Vienna, Va.-based writer, can be reached at firstname.lastname@example.org. He’s also this magazine’s e-commerce columnist.