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The macroeconomic weakness and increased uncertainty has spurred enterprises to reduce capital budgets and increasingly pressured IT managers to reevaluate their services and cut spending where appropriate. Despite these factors, we expect the enterprise WLAN market will experience growth in 2009. Let me explain.
User expectations for WLAN coverage in enterprises are being raised by a combination of:
1) comparable speed of 802.1n to Fast Ethernet
2) low WLAN penetration rate in the enterprise, and
3) the growing popularity of embedded-WiFi devices, such as ultraportable PCs and dual-mode handsets.
These factors are also contributing to a change in the perception of enterprise WLAN from a complementary to a core network service. While a slowdown in the growth of new WLAN deployments and the lengthening of upgrade cycles is expected next year, we believe the change in perception of WLAN as a core network service will drive growth in the enterprise WLAN market in 2009.
2008: The year of 802.11n
According to the Merriam-Webster online dictionary, “bailout” was the top searched word for 2008. However, if words specific to the WLAN industry were tracked, then I believe “802.11n” would top the list this year.
Before the introduction of enterprise-grade 802.11n access points in the fourth quarter of 2007, revenues from enterprise access points slightly exceeded $900 million for the full year of 2007. A year later, 802.11n not only accounts for nearly a quarter of total revenues for enterprise access points, but we expect enterprise access point revenues to experience a year-over-year growth rate reaching the mid-teens, nearly double the year-over-year growth rate of 2007. So what makes 802.11n so attractive to enterprises?
The key to the strong growth of 802.11n equipment is its performance: not only is it twice as fast as the 802.11a/g standard and comparable in speed to Fast Ethernet, 802.11n now offers twice the coverage distance at less than twice the price of 802.11a/g equipment. The combination of twice the speed, twice the distance, but less than twice the price of 802.11a/g equipment is making 802.11n the technology of choice for IT managers to provide network connectivity to their users.
Growing opportunity for WLAN in the enterprise
Despite lengthening upgrade cycles, the transition to 802.11n represents a large upgrade opportunity for vendors, and we expect this transition to not only drive growth in 2009 but also contribute to a higher rate of WLAN adoption in enterprises. In 2007, the WLAN adoption rate in enterprises was 13%, and we estimate this rate will reach 16% for the full year of 2009.
We believe the growth of WLAN in 2009 will be driven largely by enterprises in vertical industries, such as education, healthcare, manufacturing and retail that have embraced WLAN, and will be upgrading their networks to further reap productivity gains from a WLAN.
WLANs in education initially provided connectivity to a large nomadic user base, but now are also becoming in integral part of the formal education process. Universities are upgrading their WLANs to enhance the quality of education by enabling professors to incorporate technology into the classroom, such as online polling or distributing multimedia content during a classroom lecture
In healthcare, hospitals are increasingly leveraging WLAN beyond supporting voice traffic on handheld devices to locate and communicate with physicians and nurses while they make their rounds. We expect hospitals to continue to upgrade their WLANs in 2009 to help deploy mission-critical applications, such as patient monitoring and asset tracking in hospitals; all of which are aimed to maximize the time spent by physicians and nurses on each patient.
In manufacturing and retail, WLAN is not only enabling employees to coordinate efforts within the facilities via voice-over-Wi-Fi devices but also supporting inventory tracking applications. For example, Boeing has been using WLAN to distribute assembly manuals to mechanics on the factory floor so to minimize disruption to the production process. Safeway, a large grocery retailer in North America, recently upgraded their in-store WLAN infrastructure with Aruba WLAN equipment. Safeway is using the WLAN infrastructure to not only track inventory on shelves but also comply with a new Payment Card Industry (PCI) data security standard as they process sales transactions via WLAN. We believe these are just a couple of examples of why companies will continue to upgrade their WLANs into 2009.
While we believe a majority of WLAN growth in 2009 will come from network upgrades from vertical industries that have already adopted WLANs, we also believe that some growth will come from small and medium businesses that are likely to purchase a WLAN solution to expand network coverage in the office as an alternative investing in additional wireline infrastructure.
Devices drive demand for enterprise WLAN
The growing popularity of embedded-Wi-Fi devices like ultraportable PCs and dual-mode handsets, such as the iPhone and BlackBerry, is lifting expectations for WLAN in the enterprise. Access to network resources while users roam within and outside of the enterprise campus is becoming a key requirement for user productivity. For example, doctors can look up patient records on their patient monitoring devices without having to return to a physical file archive. As a result, IT managers are increasingly pressured by their user base to expand WLAN coverage in the enterprise.
We believe user demand for expanded WLAN coverage is helping – and will continue to help – increase the size of WLAN networks. As an indicator of how the footprint of enterprise WLAN is expanding, the access point-to-switch ratio increased nearly 40% year-over-year in 3Q08, reaching 19. We expect that this ratio will continue to increase as enterprises expand WLAN coverage.
While the enterprise WLAN market is not immune to the effects of the weakening macroeconomic climate, we believe the enterprise WLAN market will grow on a year-over-year basis in 2009. The combination of comparable speed of 802.11n to Fast Ethernet, low WLAN penetration rate in the enterprise, and the growing popularity of embedded-Wi-Fi devices is changing the perception of WLAN as a core network service. Enterprises are embracing WLAN as a means of enhancing productivity and efficiency in their organizations. We believe the enterprise WLAN market will not only continue to grow in 2009 but will also continue to have long-term growth potential.
Contact Ben at ben@delloro.com. Contact RCR Wireless News at rcrwebhelp@crain.com.
