Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
To adapt the words of famed chaos theorist Edward Lorenz who coined the term “butterfly effect”, 802.11n is the “butterfly” in the WLAN market. For those unfamiliar with Lorenz’s theory, he developed the term “butterfly effect” to describe how initial variations in a system can lead to a dramatic alteration of circumstances elsewhere in the system (as when, hypothetically, the flapping of a butterfly’s wings in one part of the world helps produce a storm in another part). In the WLAN market, 802.11n has definitely flapped its wings, creating a storm of activities, especially in the SOHO market segment.
Competition for the home
Since 2006, WLAN vendors have been touting the higher throughput, capacity, and range offered by 802.11n. While the uptake of 802.11n in the enterprise just started in the last few quarters, the message is resonating with consumers, and manufacturer sales to this market are in full stride and likely to achieve half a billion in 2008. The 802.11n standard is becoming mainstream. Even Mariah Carey (yes, the songstress) remarked in a recent music video that she needed to upgrade her home network to 802.11n to improve download speeds.
While early adopters typically source the latest 802.11n wireless router gear from local electronics retailers like Best Buy or Fry’s Electronics, many mass market consumers will likely not purchase 802.11n devices but will adopt this technology through a broadband CPE provided by their service provider. Service providers are expected to drive market adoption of 802.11n when 802.11n-based broadband CPE with WLAN equipment is rolled out en masse later next year, and we estimate that after this introduction it will take approximately two years before N-based products will account for more than half of broadband CPE with WLAN market.
Although we believe the storm is just beginning, we expect the 802.11n transition within the broadband CPE market will ultimately cannibalize retail-based wireless router sales. So, what are retail-focused vendors doing to brace for the storm as service providers roll out N-based broadband CPE with WLAN equipment?
802.11n changes the face of retail store shelves
During my recent visit to a local Best Buy, it was evident that retail-focused vendors like Linksys, Netgear, and D-Link are bracing for the 802.11n transition within the broadband CPE with WLAN product category by actively expanding their 802.11n-based WLAN product portfolio. Compared to my visit six months ago, the retail store shelves that once housed 802.11g-based wireless routers have nearly all been replaced with 802.11n-based wireless routers.
Retail-focused WLAN vendors are segmenting their 802.11n-based wireless router category according to feature sets, such as dual-band and gigabit-N. For less than $100, you can choose between four different grades of Linksys and Netgear 802.11n wireless routers, in decreasing $20 increments. You can even pick up an entry-level D-Link 802.11n-based wireless router at $40, an end-user price point that is now on par with enhanced 802.11g-based wireless routers. Conversely, wireless routers within the higher end of the price spectrum are incorporating features targeted at specific purposes ranging from gaming to video streaming and network storage.
So have consumers embraced the product segmentation of 802.11n? Looking at total wireless router revenues and unit shipments, the data would suggest that it has. Through this pricing strategy, the top four wireless router vendors – Linksys, Netgear, D-Link, and Belkin – have all been successful at migrating over a third of their wireless router revenue stream to 802.11n, nearly double the percentage from a year ago. In this transition, each vendor also succeeded in growing its total wireless router revenue.
The eye of the storm
As the 802.11n transition continues to gain momentum, we see a number of opportunities for retail-based vendors to pursue: expand into new customer segments, enter into emerging technologies, and/or expand within the consumer segment.
Some retail-based WLAN vendors like Linksys and Netgear are successfully leveraging 802.11n into the small and medium business segment (SMB). Given a ten fold price premium of enterprise class access points to retail-based wireless routers, these WLAN vendors are offering SMB targeted products at price points that fall within this price gap; lifting revenues in the process.
Vendors might be able to leverage their expertise with the retail channel, consumers’ brand awareness, and good understanding what consumers value in relation to what they are willing to pay in the emerging cellular-based femtocell market which is targeted for the home. While the femtocell market may become characterized by service providers supplying equipment to subscribers a change in technology typically opens the door of opportunity for a new supplier.
Alternatively, retail-focused WLAN vendors could continue to expand their importance in the consumer market by positioning the wireless router as a mechanism to manage the proliferating number of WLAN enabled devices in the home. Wireless routers have the potential to be the centerpiece for home networking. For example, with additional management functions, perhaps the router could manage the timing and signaling for video surveillance enhancing home security, monitor the amount of time children are allowed to use online gaming, or connect to content / data storage devices, or add storage as a feature as a way to drive additional value into the wireless router.
The effects of the broader transition to 802.11n will continue to alter the course of the WLAN market. Like Lorenz’s proverbial butterfly, the emergence of the 802.11n protocol already generated a flurry of market activities. Yet we are only seeing the initial effects of 802.11n, so get out your umbrellas-storms are in the forecast for the WLAN market.
Contact Ben at ben@delloro.com. Contact RCR Wireless News at rcrwebhelp@crain.com.
